Nvidia stock holds Buy rating at TD Cowen despite modest results

Nvidia reported a mild Q2 earnings beat, but shares declined on softer data center revenue driven by a $4 billion decline in H20 compute revenue and a guidance miss relative to high investor expectations. Despite underlying compute revenue growth excluding H20 and robust demand for new products like Blackwell Ultra, the guidance shortfall and unmet investor expectations for future EPS led to varied analyst price target adjustments, underscoring ongoing concerns about data center segment performance amidst high valuations and China risks.

Analysis

Nvidia's Q2 results presented a mixed signal to the market, with a mild earnings beat overshadowed by a sequential decline in Compute revenue and guidance that fell short of high investor expectations. While shares fell post-announcement, the weakness was highly concentrated; a roughly $4 billion decline in H20 product revenues, linked to China-focused offerings, was the primary driver of the data center segment's softness. Critically, TD Cowen's analysis indicates that excluding the H20 impact, Compute revenue would have grown a robust 12% quarter-over-quarter and is accelerating, suggesting sustained underlying demand for Nvidia's core AI infrastructure. Despite the guidance miss, the company's fundamentals remain strong, evidenced by an 86.17% year-over-year revenue growth and an "Excellent Financial Health Score" from InvestingPro. Analyst sentiment remains largely constructive, with multiple firms like KeyBanc and Truist raising price targets based on AI momentum and networking strength, though the adjustments reflect a recalibration of near-term growth expectations rather than a change in the long-term thesis of AI dominance.

Key Decisions for Investors

• Investors should parse the headline data center miss to focus on the underlying performance, as core compute revenue grew approximately 12% quarter-over-quarter when excluding the China-specific H20 products, indicating resilient demand.
• The $4 billion revenue impact from H20 products underscores the material risk of geopolitical tensions; monitor future guidance and any news regarding China licenses, as this remains a significant headwind to otherwise strong growth.
• Given the stock's high P/E of 57.81 and the market's negative reaction to results that were merely below elevated expectations, it is prudent to assess if the current valuation adequately balances the long-term AI opportunity against these demonstrated near-term risks.
• Pay close attention to management commentary on the adoption and transition progress for the next-generation Blackwell Ultra and Rubin platforms, as their success is critical to justifying the company's premium valuation and overcoming the current guidance softness.