Nvidia stock sinks after data center sales miss forecasts

Nvidia reported mixed Q2 results, with overall revenue of $46.7 billion and EPS of $1.05 beating analyst estimates, but its stock fell over 3% after-hours as data center revenue of $41.1 billion slightly missed the $41.3 billion forecast. Despite this, CEO Jensen Huang affirmed "extraordinary" demand for next-gen Blackwell chips, and the company issued strong Q3 revenue guidance of $54 billion (topping expectations) while authorizing a $60 billion stock buyback. The data center segment's sequential compute revenue decline was attributed to a $4 billion reduction in China-bound H20 chip sales, which were excluded from projections, highlighting ongoing geopolitical impacts on a key growth driver.

Analysis

Nvidia reported mixed second-quarter results, beating headline revenue and EPS estimates but causing a negative after-hours stock reaction. The company posted revenue of $46.7 billion and adjusted EPS of $1.05, surpassing consensus forecasts of $46.2 billion and $1.01, respectively. However, the stock fell over 3% as the critical data center segment's revenue of $41.1 billion came in just shy of the $41.3 billion expectation. Management attributed this miss to a specific, isolated event: a $4 billion reduction in sales of lower-powered H20 chips to China, which caused a 1% sequential decline in data center compute revenue. Offsetting this weakness, the company provided strong Q3 revenue guidance of $54 billion, which exceeds the $53.4 billion consensus and notably excludes any H20 sales, suggesting robust underlying demand. This optimism is reinforced by CEO Jensen Huang's commentary on "extraordinary" demand for the next-generation Blackwell platform and a newly authorized $60 billion stock buyback program, signaling significant management confidence. Despite strong year-over-year growth, the report also highlighted that overall revenue growth has moderated to its slowest pace since the first quarter of fiscal year 2024, while new US trade policies, including a 15% fee on China sales, introduce a new variable for future profitability.

Key Decisions for Investors

• Assess whether the after-hours price decline, driven by a narrow data center miss specifically attributed to reduced China sales, offers a strategic entry point given the strong Q3 revenue forecast and a new $60 billion buyback program.
• Shift focus from current-quarter performance to tracking the production ramp and market adoption of the next-generation Blackwell platform, as management commentary positions this as the primary forward-looking catalyst.
• Model the potential impact of the new 15% government fee on China sales as a direct headwind to gross margins and monitor evolving US-China trade policies, which remain a significant source of volatility.
• Consider the moderation in revenue growth rate alongside the strong forward guidance to evaluate if the company's valuation appropriately balances near-term headwinds with long-term AI-driven expansion.