Nvidia Earnings: No Signs of a Slowdown in Demand for AI Chips

Nvidia reported robust fiscal Q2 revenue of $46.7 billion, a 56% year-over-year increase that surpassed guidance, and issued strong Q3 guidance of $54.0 billion, signaling sustained high demand for its AI chips despite excluding China revenue. Analysts view the subsequent modest share sell-off as a buying opportunity, driven by accelerating supply of Blackwell Ultra products, strong demand from leading US cloud customers, and Nvidia's significant capture of an anticipated $4 trillion cumulative data center market, leading to an increased fair value estimate to $190.

Analysis

Nvidia reported fiscal second-quarter revenue of $46.7 billion, reflecting a 56% year-over-year increase that surpassed its $45.0 billion guidance. The company’s outlook remains exceptionally strong, with third-quarter revenue guidance of $54.0 billion, which would represent 54% year-over-year growth. These figures underscore the unabated and accelerating demand for its AI accelerators, with both reported results and forward guidance excluding H20 product revenue to China, thereby highlighting the strength of demand from US cloud customers and other global markets. A key operational insight is the acceleration of supply, particularly with the Blackwell Ultra rollout; the Q3 guidance implies a $7 billion sequential revenue increase, a significant jump from the average $4 billion quarterly increments seen over the past two years. Despite these robust fundamentals, the stock saw a modest after-hours selloff, which the source attributes to the earnings beat not being as substantial as in recent quarters. Morningstar views this market reaction as a buying opportunity, raising its fair value estimate to $190 from $170 while maintaining a 'Very High Uncertainty' rating. The long-term thesis is anchored by management's expectation of a $4 trillion cumulative data center spending opportunity this decade, of which Nvidia has historically captured about one-third.

Key Decisions for Investors

• Consider the post-earnings share price weakness as a potential tactical buying opportunity, as the fundamental growth drivers, particularly the accelerating Blackwell supply and strong US cloud demand, appear to be intact.
• Investors should closely monitor the sequential revenue growth in Q3, as achieving the guided $7 billion increase will be a critical proof point for the company's supply chain execution and the market's absorption of the new product cycle.
• Despite the bullish outlook, positions should be managed with an awareness of the 'Very High Uncertainty' rating, acknowledging that market sentiment is highly sensitive to the magnitude of earnings beats and any potential deceleration in growth.