Nvidia delivered a stellar fiscal second quarter, surpassing revenue and EPS estimates and astonishing analysts with a 70% revenue growth forecast for fiscal year 2028, significantly higher than the 44% anticipated. This robust outlook, driven by the insatiable demand for its AI chips, sent its stock up 4%.
The company also announced a major deal with Amazon, which will acquire 2 million Nvidia GPUs and utilize its new Vera CPUs.
Nvidia (NVDA) has delivered a powerful performance in its fiscal second quarter, exceeding analyst expectations and issuing a revenue forecast that has sent its stock soaring. The company, a central pillar in the artificial intelligence revolution, projects an impressive 70% revenue growth for fiscal year 2028, significantly surpassing the 44% analysts had anticipated. Following these strong results, the stock jumped 4% on the company's forward-looking guidance.
Key Financial Highlights (vs. LSEG estimates):
- Adjusted Earnings Per Share: $2.22 (vs. $2.10 estimated)
- Revenue: $96.22 billion (vs. $92.17 billion estimated)
The company's position at the heart of the AI world has driven relentless growth, with revenue more than doubling to $96.22 billion in the latest quarter from $46.7 billion a year earlier. Nvidia's chips are integral to building and serving the most advanced AI models, and the company is increasingly providing financial backing to support the funding and construction of new AI data centers.
CFO Colette Kress noted that while customer forecasts indicate revenue could double next year, guidance reflects ongoing supply constraints. Net income for the quarter more than doubled to $53.95 billion, or $2.22 per share, up from $24.76 billion, or $1.87 per share, in the prior year.
Despite a historic three-year rally, Nvidia's stock has seen a more modest 13% rise this year as of Wednesday's close, slightly outpacing the Nasdaq. The company faces increasing competition from Advanced Micro Devices (AMD), Google, and others, coupled with soaring memory costs amid a global shortage.
Nvidia Breaks Out 'Indebtedness' as Standalone Risk Factor
Nvidia's recent quarterly filing listed indebtedness as a new risk factor, warning that rising obligations could 'adversely affect' its financial condition and cash flows. As of July 26, the company held $33.5 billion in senior notes and a $25 billion commercial paper program. This follows Nvidia's first bond sale since the AI boom began, which aimed to raise up to $25 billion. The filing revealed $15 billion of debt is due in one to five years, a significant increase from $2.75 billion in the previous quarter. Nvidia stated, "Maintenance of our indebtedness, contractual restrictions, and additional issuances of indebtedness could cause us to dedicate a substantial portion of our cash flows from operations towards debt service obligations and principal repayments."
Huang Reveals Amazon GPU Deal Includes 'Millions of CPUs'
During an interview on CNBC's Mad Money, CEO Jensen Huang provided further details on the company's agreement with AWS. He disclosed that, in addition to the 2 million GPUs Amazon intends to purchase, the cloud giant could also acquire "millions of CPUs." Nvidia is actively scaling up sales of its new Vera CPU, which directly competes with established leaders Intel and Advanced Micro Devices. Huang also mentioned that Amazon plans to integrate Nvidia's technology into its robotics initiatives.
Huang's AI Investment Philosophy: 'Only regret I have is that I didn't invest more and sooner'
Nvidia has made substantial investments in leading AI laboratories, including a reported $30 billion stake in OpenAI earlier this year. Huang expressed a desire for even greater aggression in these investments, especially ahead of anticipated IPOs. "Investing in these companies are a once-in-a-generation opportunity," Huang stated on the earnings call. "The only regret that I have is that I didn't invest more and sooner." He suggested that OpenAI and Anthropic are likely to go public soon, with other companies expected to follow suit.
Margins Expected to Bottom in Fiscal Fourth Quarter
Nvidia anticipates a decline in gross margin, with an expected bottom in the range of 71% to 72% in the fourth quarter of fiscal 2027, largely attributable to rising memory prices. CFO Kress emphasized the company's transparency on this matter, noting that "Memory scarcity today is being driven in large part by the AI buildout itself."
Amazon to Purchase 2 Million GPUs from Nvidia
Amazon and Nvidia have announced a significant deal: Amazon Web Services (AWS) will acquire 2 million Nvidia GPUs and utilize the company's new Vera CPU. Some of these Vera CPUs for AWS will be integrated with Nvidia's upcoming AI chip, Rubin, while others will operate as standalone units. This agreement underscores continued heavy spending by hyperscalers, despite investor concerns about potential saturation. Kress projected that capital expenditure among the top five hyperscalers is set to increase to $1.3 trillion next year, up from $800 billion in 2026.
$26 Billion Worth of Buybacks
Nvidia executed $26 billion in share repurchases and dividends during the quarter, following its May authorization of an additional $80 billion in buybacks. The company also plans to issue a 25-cent per share dividend. Nvidia has been progressively increasing its capital return initiatives as revenue and free cash flow have expanded significantly in recent years.
Surge in Supply Commitments
Nvidia reported a substantial increase in its supply commitments, which more than doubled from $119 billion last quarter to $279 billion in the latest period, primarily driven by memory procurement. "We continue to make strategic commitments across our supply, infrastructure, and partner ecosystems to capitalize on the substantial growth opportunities ahead of us," Nvidia stated in its CFO commentary.
China Sales Still Negligible
Despite receiving a green light from the U.S. government late last year to sell older chips to China, sales in the region have remained slow. The extent of approval from the Chinese government for these imports is still unclear. CFO Colette Kress's written commentary indicated that shipments of these chips constituted less than 1% of the company's data center revenue.
Huang Highlights AI's Inflection Point
CEO Jensen Huang emphasized the profound shift in the AI landscape, stating that AI has "reached its inflection point" and that the demand for large GPU clusters has dramatically expanded. He noted, "This time last year, one lab alone was driving the buildout. Today, we have a golden age of new AI labs and startups, multiple frontier labs scaling in parallel, a thriving open-model ecosystem and physical AI coming online — with strong momentum across the U.S. and around the world."
Gross Margin Holds at 75%
For the second consecutive quarter, Nvidia maintained a robust 75% gross margin, a remarkable achievement for a hardware company. However, this margin is currently facing pressure due to increasing prices for components such as memory and wafers. Nvidia anticipates a slight dip in its gross margin to 74% in the current quarter.
Nvidia's Non-Hyperscaler Data Center Customers Outpace Growth
While Nvidia continues to rely heavily on a select group of large internet companies (hyperscalers) for a significant portion of its revenue, other business segments are rapidly accelerating. Sales to AI Clouds, industrial, and enterprise (ACIE) customers reached $40.3 billion in the quarter, marking a 138% annual increase. In comparison, hyperscaler revenue more than doubled to $48.7 billion, demonstrating the broadening base of Nvidia's data center business.
Investment Gains from Intel and SpaceX Bets
Nvidia's net income included a substantial $7.8 billion gain on equity investments this quarter, following a $15.9 billion gain in the first quarter. These gains stem from significant investments in companies like Intel and SpaceX.
Data Center Sales Exceed Expectations
Nvidia's data center sales reached $89 billion, outperforming StreetAccount's expectations of $86.33 billion and representing a remarkable 117% annual increase. The data center unit, which encompasses revenue from its market-leading AI chips, now accounts for 92% of Nvidia's total sales. Overall, Nvidia's total revenue for the quarter climbed 106% year-over-year.
Guidance Tops Estimates
Nvidia projects sales of $108 billion for the current quarter, plus or minus 2%, surpassing analyst expectations of $104.2 billion. This outlook notably excludes any data center sales from China.
Stock Pullbacks Follow Recent Nvidia Earnings
In a trend observed over the past four quarters, Nvidia's stock has retreated the day after reporting results, even when meeting or exceeding estimates for earnings per share, revenue, and forward guidance. According to Bespoke Data, Nvidia has consistently beaten top-line metrics (with one exception) yet faced investor corrections. The shares were down approximately 1% in the final hour of regular trading, marking the eighth decline in nine days.
Nvidia Aims to Diversify Beyond Hyperscalers
A key focus of Wednesday's report was Nvidia's non-hyperscaler sales. Last quarter, half of Nvidia's sales went to a handful of internet giants, a split the company now reports as 'hyperscalers' and 'AI clouds, industrial, and enterprise customers.' Investors are keen to see if non-hyperscaler chip buyers are growing revenue faster. CEO Huang previously noted, "The easiest go-to-market, of course, is the hyperscaler, because there are only five or six of them. The rest of them, the rest of the industry, represents 250,000 companies around the world."
Tightening Bond Between Huang and Musk
The relationship between Jensen Huang and Elon Musk has been strengthening. Nvidia recently disclosed a $21 billion stake in SpaceX, originating from its earlier $10 billion investment in xAI before the merger of Musk's two companies. These shares are now valued at approximately $17 billion. Following SpaceX's record IPO in June, Musk endorsed Nvidia's Vera Rubin platform on an earnings call, stating that SpaceX would exclusively use Nvidia chips for its AI data centers. Recently, Musk and Nvidia announced progress on developing orbital data center technology, the SpaceX Starmind AI satellite. Musk confirmed that they have "designed a space-optimized Vera Rubin NVL72 system for launch to orbit in Q4 next year, with significant scale in 2028," expecting a "significant" allocation of Vera Rubin chips next year.
Top Customers Facing Cash-Flow Challenges
Nvidia's customers are investing heavily in AI infrastructure, but the sustainability of this spending is under scrutiny. Amazon and Alphabet both reported negative free cash flow for the second quarter, as did Elon Musk's public companies, Tesla and SpaceX. Meta also saw its cash generation dwindle by about 90%. Hyperscalers are collectively dedicating hundreds of billions to AI infrastructure this year, with Goldman Sachs projecting this figure to reach $1.2 trillion by 2027. These companies are raising significant capital, both equity and debt, and collaborating with financial firms to offload some balance sheet risk. While they cite demand as the driver, market volatility has increased due to concerns about the industry taking on excessive risk.
Wall Street Anticipates 83% Q3 Growth from Nvidia
Investors expect Nvidia to project strong growth, with analysts polled by LSEG forecasting earnings of $2.38 per share on $104.2 billion in revenue for the third quarter. This revenue figure would represent an 83% jump from the $57 billion reported a year earlier. Some analysts are even more bullish, with the highest estimate for third-quarter revenue reaching $112.2 billion.
Nvidia 'Not Immune to Supply Challenges' Amid Soaring Memory Prices
Global memory prices are surging due to a shortage, partly driven by Nvidia's demand for high-performance HBM memory for its chips and large quantities of lower-specification DRAM for its systems. DRAM prices for servers increased 64% in the latter half of last year, with Trendforce projecting a 260% jump in 2026. Nvidia noted that higher device prices due to memory impacted demand for some consumer GPUs in the most recent quarter, but the company spent $145 billion in Q1 to secure necessary supply. CFO Colette Kress affirmed, "While we are not immune to supply challenges, we remain confident in our ability to support the growth opportunity ahead."
Gross Margin Expected at 75%
Nvidia is anticipated to report a robust 75% gross margin, consistent with the first quarter. However, significant upfront spending to build inventory for the wider release of its Vera Rubin AI systems, coupled with skyrocketing prices for components like memory and wafers, are factors to watch. The company may also provide insights into widely reported price hikes for its AI chips.
Huang to Discuss Nvidia's Credit Strategy
Earlier this month, CEO Jensen Huang unveiled a program with six leading financial firms pledging up to $500 billion in investor financing, based on the premise that chips have become an investable asset. Nvidia's substantial cash flow and strong balance sheet enable it to offer residual value backstops for certain projects, leading to investor inquiries about the potential financial implications. Morgan Stanley recently initiated credit coverage on Nvidia, acknowledging the validity of financing pricey AI chips but cautioning that the long-term risk remains difficult to quantify. Morgan Stanley credit analyst Lindsay Tyler noted, "Our model and relative value are supportive, but we think the tail remains too early-stage, opaque, and sizable to step in."
