Nvidia announced its second-quarter financial report on Wednesday, outperforming Wall Street’s expectations in overall revenue and profit. However, the most anticipated data center revenue fell slightly below market estimates, and the outlook for the third quarter excluded sales in the Chinese market. These signals raised concerns among investors about slowing growth, leading to Nvidia’s stock price edging up slightly during normal trading hours but dropping more than 3% after-hours, causing a market value loss of over $120 billion.
In the second quarter ending July 27, Nvidia achieved a revenue of $46.7 billion, a 56% year-on-year increase, surpassing Wall Street’s average expectation of approximately $46.2 billion. The net profit reached $26.4 billion, with an adjusted earnings per share (EPS) of $1.05, also beating analysts’ expectations.
The data center division remains the company’s largest business, with revenue reaching $41.1 billion, a 56% growth compared to the same period last year but slightly below analysts’ estimated $41.3 billion. The gaming sector generated $4.29 billion in revenue, surpassing the market forecast of $3.8 billion; while the automotive division reported $586 million, slightly lower than analysts’ projections.
Nvidia forecasts that its third-quarter revenue, ending in October, will reach $54 billion, with a 2% fluctuation, aligning with Wall Street’s average expectations but falling short of some analysts’ original forecasts of over $60 billion. The company did not include shipments to China in its financial projections, indicating continued high uncertainty in that market.
CFO Colette Kress stated that the company’s “AI Sovereignty” initiative is expected to contribute around $20 billion in revenue this year and anticipates that global AI infrastructure spending could accumulate to $30-40 trillion by 2030.
CEO Jensen Huang remarked during a conference call, “We are at the beginning of what we are building.”
The Chinese market remains the biggest variable in Nvidia’s future prospects. The company did not record sales to China for the H20 chip in the second quarter, with only one overseas customer purchasing H20 chips worth $650 million.
Earlier this year, the Trump administration restricted the export of advanced AI chips, causing Nvidia to lose approximately $8 billion in revenue in the second quarter. Washington recently eased some restrictions this month, but required Nvidia to pay 15% of its sales revenue in China to the U.S. government, although this measure has not been formally incorporated into regulations yet.
Nvidia warned in its financial filings that any mandatory revenue-sharing arrangements “could lead to lawsuits, increased costs, weakened competitiveness, and benefit competitors not subject to such regulations.”
Meanwhile, Beijing encourages the reduction of the use of U.S. technology in government systems, further deepening concerns about the demand outlook in China.
Michael Ashley Schulman, Chief Investment Officer at Running Point Capital, straightforwardly stated, “Nvidia’s biggest bottleneck is not silicon [semiconductor material], but diplomacy.”
On the day of the financial release, Nvidia’s stock price edged up slightly to $181.77 during normal trading hours but ultimately closed at $176.01 after-hours, a decrease of around 3.2%. Reuters pointed out that this reflects investors’ disappointment that the company’s outlook did not significantly exceed expectations again.
Given Nvidia’s stock had surged more than tenfold over the past two and a half years, market disappointment was almost inevitable.
Analyst Jacob Bourne from eMarketer also cautioned that while the data center sector is significant, the short-term returns on AI applications are still hard to quantify, and expenditures by hyperscale cloud service providers may tighten on non-core businesses.
Additionally, concerns have arisen in the market about whether AI is overheated. Sam Altman, CEO of OpenAI, stated last week that he believes there is a bubble in the AI market, likening it to the dot-com bubble of the 1990s.
He expressed, “Are investors overall too excited about AI? My opinion is yes. But is AI one of the most important developments in modern times? My opinion is also yes.”
Alibaba co-founder Joseph Tsai, Bridgewater Associates founder Ray Dalio, and Torsten Slok, Chief Economist at Apollo Global Management, have issued similar warnings this year.
Although some researchers believe that the long-term fundamentals of the AI industry remain strong, these warnings have sparked concerns in the market about overvaluation of technology companies.