Nvidia has reported robust earnings, exceeding revenue expectations with $46.74 billion. However, the company's growth outlook is facing uncertainty, primarily due to ongoing geopolitical issues impacting its China sales. Despite strong demand for its AI chips, the chip giant's forecast for the upcoming quarter did not include any sales of its H20 chips to China, a key market.
Key Takeaways
Nvidia beat Q2 revenue and earnings estimates, but provided a cautious outlook.
Uncertainty surrounding US regulations and potential Chinese government directives is impacting China sales projections.
Demand for Nvidia's AI chips remains exceptionally high across the board.
China Sales Uncertainty Clouds Growth Outlook
Nvidia's Chief Financial Officer, Colette Kress, stated that the company is awaiting formal regulations regarding a potential 15% remittance on chips sold to China. This uncertainty has led Nvidia to exclude any H20 chip sales to China from its third-quarter revenue forecast, which ranges from $52.9 billion to $55.1 billion, slightly above analyst expectations of $53.46 billion. The company noted that it did not sell any H20 chips to China in the second quarter, though some inventory was sold to a customer outside the region. CEO Jensen Huang emphasised the importance of the Chinese market, which hosts a significant portion of the world's AI researchers, and expressed the company's commitment to advocating for market access.
Strong Demand and Financial Performance
Despite the China-related headwinds, demand for Nvidia's AI chips continues to be exceptionally strong, with CEO Jensen Huang stating that "everything's sold out." The company's data centre revenue reached $41.1 billion, a 56% year-over-year increase, though it slightly missed some analyst expectations. Nvidia's gaming segment also showed resilience, with revenue reaching a record $4.3 billion, a 49% increase year-over-year. The company also announced a significant $60 billion stock repurchase program, underscoring its financial strength.
Analyst Reactions and Future Prospects
Analysts have offered mixed reactions, with some expressing concern that Nvidia's valuation may not be sustainable without significant contributions from China sales. However, others remain optimistic, citing the robust underlying demand for Nvidia's products and its strong gross margins. The company is also looking ahead to new chip architectures, such as Rubin, expected in 2026, and is actively pursuing "sovereign AI" initiatives to sell chips and software to governments globally, projecting substantial long-term growth opportunities in AI infrastructure spending.
