Nvidia Q2 results ahead, but shares slip on soft data center revenue, China risks

Investing.com -- Nvidia reported better-than-expected second-quarter results on Wednesday, but data center revenue fell just short of market expectations as U.S. restrictions on H20 chip sales to China weighed.

NVIDIA Corporation (NASDAQ:NVDA) shares were down 1.4% in premarket trading Thursday as of 04:31 ET (08:31 GMT).

For the three months ended Jul. 31, the company reported adjusted earnings per share of $1.04 on revenue of $46.7 billion. Analysts polled by Investing.com anticipated per-share income of $1.01 and revenue of $46.1 billion.

Nvidia’s data center unit, which makes up the bulk of revenue and is in high demand to power AI apps, saw revenue jump 56% to $41.1 billion, just missing estimates for $41.34 billion as the H20 chip ban to China weighed. 

"There were no H20 sales to China-based customers in the second quarter," the company said. This was after Nvidia was in April restricted by the Trump administration from selling the H20 in China, and only received approval for the move in late-July.

Nvidia Q3 guidance beats, but China outlook muted 

Nvidia forecast fiscal 2026 third-quarter revenue of $54 billion, plus or minus 2%, beating estimates of $52.76 billion.

The guidance excludes H20 chip sales to China, the company said, as it faces heightened government scrutiny in China. Despite Nvidia resuming its H20 sales in the country, Beijing was seen promoting the use of locally-sourced chips, while also raising security concerns over Nvidia’s offerings. 

Speaking at a post-earnings call, Nvidia CFO Colette Kress said the company had not shipped any H20 chips to China in the current quarter, despite receiving U.S. approval to do so.

"While a select number of our China based customers have received licenses over the past few weeks, we have not shipped any H20 based on those licenses," Kress said.

She added that Nvidia had also not received any official word on the U.S. government taking 15% of the revenue generated from H20 sales to China, as outlined by government officials last week. 

Kress said that if geopolitical issues were to subside, Nvidia will ship between $2 billion and $5 billion in H20 revenue in the third quarter. But she also noted that the situation over China remained highly uncertain. 

"What makes the $54B October quarter revenue guidance impressive in our view is that there are no H20 revenues built in which we see as potential upside," Piper Sandler analyst Harsh V. Kumar said in a note. 

Nvidia CEO Jensen Huang said the company was still attempting to remain competitive in the Chinese market, which he estimated was worth at least "$50 billion of opportunity," if the company were "able to address it with competitive products." 

Huang said the opportunity for Nvidia to release its next-generation Blackwell line in China "is a real possibility." 

Wolfe Research’s Chris Caso said Nvidia’s guidance was a "touch low" when compared to elevated street expectations. But the results still indicated that the company’s Blackwell line, which is largely expected to be its next big growth driver, remained on track. 

Nvidia is at the heart of a massive AI-fueled valuation boom over the past two years, as the company benefited greatly from increased demand for its AI chips. 

But investors were seen growing sceptical over just how long this AI boom will last, especially as a recent report from the Massachusetts Institute of Technology raised questions over the profitability of AI products.

Doubts over AI’s long-term prospects could stall spending on data center infrastructure, in turn dampening demand for Nvidia’s chips. 

But Nvidia dismissed these concerns on Wednesday, with CEO Huang stating that sustained spending by Wall Street’s so-called AI hyperscalers was likely to keep chip demand underpinned in the long term. 

Jefferies analysts said demand signals for Nvidia remain "rock solid", with “Hopper and Blackwell sold out across the board.” They added that the Blackwell Ultra ramp is progressing well, easing earlier concerns about supply chain constraints.

The team sees “a path to $7+ in EPS next year with $8+" in calendar year 2027 and reaffirmed Nvidia as their overall top pick.

Separately, analysts at Truist Securities said investors will largely focus on Nvidia’s sales figures and guidance, which came in “slightly below buyside expectations.” But the analysts described this as only “a minor imperfection, and [we] instead focus on management’s resilient longer-term outlook."

(Yasin Ebrahim, Ambar Warrick contributed to this report)