Nvidia Rises After Solid Earnings, Reversing Margin Concerns As Company Guides To 70% 2028 Revenue Growth

Update (5:10pm): NVDA stock is very volatile, and after sliding 3% at first on solid earnings but weak margin guidance, the stock has since recovered and is up over 5% as the earnings call begins, on the following comments from Jensen Huang:

• *NVIDIA CFO SAYS SEEING DEMAND ACCELERATION EVEN AT OUR SCALE
• *NVIDIA CFO SAYS REVENUE TO GROW ABOUT 70% IN FISCAL 2028
• *NVIDIA CFO SAYS SEEING DEMAND ACCELERATION EVEN AT OUR SCALE

As Bloomberg notes, Amazon’s commitment to use a lot more Nvidia products and a strong prediction for growth in revenue of about 70%, well above whispers of about 40-50%, next year has shoved aside the naysayers. The 2028 guidance, which came unexpectedly and was intended precisely the spark a buying spree in the stock, did just that, and has pushed the shares about 5% after hours. 

* * * 

Earlier:

In our preview of NVDA earnings we said that "Nvidia will beat FQ2 (July) revenue estimates by approximately $3-4 billion, with revenue potentially reaching $94-95 bn. The stock, however, will not respond to the beat.... recall revenue guidance has beaten Street consensus by an average of 4% over the past four quarters, while the stock has traded down 3%/5% on average over the subsequent 7/30 days." It seems we were we right: despite blowout beats on the top and bottom line, the stock is sliding after hours, in what will be the 6th of the past 7 earnings reports the stock has tumbled despite beating bigly. 

Here is what NVDA just reported for Q2: 

• Adjusted EPS $2.22, beating est $2.09
   
• Revenue $96.22 billion, beating estimates of $92.38 billion
  • Data center revenue $89.02 billion, beating estimate $85.86 billion
  • Hyperscale Revenue $48.71 billion, beating estimate $43.55 billion
  • AI Clouds, Industrial, & Enterprise revenue $40.31 billion, missing estimate $41.96 billion
  • Edge Computing revenue $7.20 billion, beating estimate $6.61 billion
  • Compute & Networking revenue $88.30 billion, beating estimate $84.69 billion
     
• Adjusted gross margin 75%, in line with exp. 75%
• Adjusted operating expenses $8.23 billion, below estimate $8.32 billion
• R&D expenses $7.05 billion, above estimate $7 billion
• Adjusted operating income $63.96 billion, beating estimate $61.19 billion

While revenue numbers were impressive, don't forget the circular financing.  Almost half of the company's record $96BN in revenue, or $40.3 BN, came from hyperscaler customers who can't fund their own buildout without outside capital, and without Nvidia handing them cash to buy its own products. As we have extensively reported, Nvidia sells the chips and simultaneously guarantees the leases and invests in the builders so the orders keep coming, helping create a massive $3 trillion off-balance sheet funding hold. Two of the companies which are supposed to generate revenue in the AI ecosystem, OpenAI and Anthropic, both lost gobs of money last year. Both are heading to IPO to raise more cash to keep buying.

Looking ahead, the company shared the following Q3 Guidance

• Revenue $108 billion (+/- 2%), beating estimate of $104 billion; the company also said it does not assume any Data Center compute revenue from China in its outlook.
• Gross Margin 73.5-74.5%, missing estimates of 75%
• GAAP and non-GAAP operating expenses are expected to be approximately $9.2 billion and $9.0 billion, respectively.

While the guidance was solid, and well above the sellside, it may not have been solid enough with some buysiders throwing around numbers as high as $109 billion. 

Commenting on the quarter, CEO Jensen Huang said that “AI has reached its inflection point. It’s doing useful work. Its tokens are productive and profitable. Now, compute is revenue. And demand is accelerating. This time last year, one lab alone was driving the buildout; today, we have a golden age of new AI labs and startups, multiple frontier labs scaling in parallel, a thriving open-model ecosystem and physical AI coming online — with strong momentum across the U.S. and around the world. The AI infrastructure buildout is at full steam. Vera Rubin, now in full production, was built to power exactly this moment.”

Nvidia’s latest quarter was still about the Blackwell Ultra. The company said its 117% jump in Data Center revenue was driven by the ramp of Blackwell Ultra infrastructure. The extremely expensive Vera Rubin is next (recall "Nvidia's Vera Rubin Rack Will Cost $7.8MM: Here's What's In It"). Nvidia built inventory to prepare for Rubin’s introduction in the fiscal third quarter, while saying the new platform is now ramping into full production. That means the $108 billion revenue outlook Nvidia just gave investors is the first quarter where Rubin should begin contributing meaningfully to sales.

The other problem is that Vera Rubin needs massive amounts of memory at a time when memory prices, unlike a year ago, are absolutely stratospheric.

Which bring us to the next point: Nvidia forecast a margin between 73.5% and 74.5%, versus analyst estimates of about 75% and estimates as high as 76.5%. Needless to say, that won’t help worries about increasing component costs, especially after the company is raising prices on many of its customers.

To be sure, there is a growing focus on Nvidia’s gross margin, which is where competition is starting to manifest in the form of more aggressive pricing cuts.  Recall that Nvidia’s recently told customers its prices are going up because of costs; so the questions about whether it can maintain the 75% margin level it’s guided to will continue.

Another concern, and a reason why the stock is dumping: Nvidia’s future supply commitments have more than doubled in a single quarter,  jumping to $279 billion from $119 billion. The reason, as Bloomberg notes, is striking: Nvidia says the increase is primarily related to securing memory. These aren’t costs already incurred, but commitments to suppliers to lock in the components and capacity needed to meet AI demand over the next several years. Nvidia has $92 billion committed for the rest of this fiscal year, $87 billion for FY28 and $88 billion for FY29

And while most concerns focus on the income and cash flow statement, according to Vital Knowledge, this is going to be the most talked about part of the Nvidia report: "Accounts receivable was $63.1B with 60 days sales outstanding (DSO), up from 45 days sequentially, due to extended payment terms on large, multi-quarter agreements with certain investment-grade customers."

It appears that we may not even get to the off balance sheet bubble (discussed overnight): net working capital alone is starting to be a huge issue for the company and its clients.

China also remains a giant question mark for Nvidia. There have been signs that Beijing is allowing limited purchases of its chips by Chinese companies. That’s after the Asian nation had earlier retaliated against Washington’s restrictions with its own soft of imports of US technology. Nvidia’s Huang was able to get Washington to ease some restrictions on exports, in the form of limited licenses to some companies in China willing to take older Nvidia products. 

The net effect persists: Nvidia is largely locked out of the biggest market for semiconductors, a country that’s actively trying to foster competition for its products, and judging by recent performance from open-weight models, is succeeding. 

And lets not forget growing competition: OpenAI is just one of a growing group of customers and rivals who are touting their own chip efforts and claiming parity or performance leads over Nvidia’s offerings. Until there’s enough supply to fill every order, that remains a moot point. But there are growing concerns that Nvidia’s utter dominance is facing more serious challenges.  As reported earlier, OpenAI said its new Jalapeño processor outperformed Blackwell systems in two areas in its tests. So does specialized AI compute eventually chip away at Nvidia’s dominance, or does explosive growth in overall compute demand leave room for everyone? 

Putting it all together, despite another blowout quarter, the stock is once again down on results in what is becoming a habit...

... and it is only a matter of time before increasingly impatient investors start asking just what will it take for the stock to actually go up on earnings, for once.