Nvidia Falls Below Key Level After Alibaba's Surprise China AI Chip Announcement; Buy or Sell?

Nvidia's stock price dropped after the company's Q2 report topped earnings and sales expectations but forecast a slightly higher revenue outlook for Q3. The stock's decline extended losses after the release of Alibaba's China AI chip surprise. The question remains whether Nvidia is a buy or sell now.

NVIDIA Corporation (NVDA) recently reported its second-quarter (Q2) fiscal 2026 earnings, which surpassed market expectations. The company reported revenues of $46.74 billion, a 56% year-over-year surge, and a 1.3% beat over the consensus estimate [1]. However, the stock price dropped after the report, extending losses following Alibaba's China AI chip surprise. This begs the question: Should investors buy, sell, or hold NVIDIA stock now?

Q2 Performance and Outlook

NVIDIA's Q2 performance was driven by its data center segment, which generated $41.1 billion in revenues, a 56% year-over-year increase. This segment represents 87.9% of total sales, reflecting the company's stronghold in AI-driven computing [1]. The company's Blackwell GPU computing platforms, particularly the GB300, have been a key catalyst, with high-volume shipments now exceeding 1,000 racks per week [2].

Looking ahead, NVIDIA expects third-quarter (Q3) revenues to reach $54 billion, representing 55% year-over-year growth and a 16% sequential rise. The company's robust cash flow generation, with $13.45 billion in free cash flow in Q2 and $39.58 billion in the first half of fiscal 2026, supports its growth trajectory [1].

Valuation and Competitive Landscape

NVIDIA's stock price has been volatile, trading at a forward price-to-earnings (P/E) ratio of 33.37, higher than the sector's average of 27.63 [2]. The company's valuation is on the higher side, with a Value Score of D, suggesting caution [1]. However, NVIDIA's strong financial execution and profitability, with non-GAAP gross margins of 61% and non-GAAP operating income of $30.17 billion, support its current valuation [1].

NVIDIA's competitors, Advanced Micro Devices (AMD) and Intel (INTC), are stepping up their capabilities in the data center AI chip market. AMD's MI300X GPUs and Intel's Gaudi 3 AI chips are gaining attention for their high memory and power efficiency [2]. However, NVIDIA's leadership in AI chip development positions it well for sustained revenue growth in the data center segment.

Conclusion

NVIDIA's Q2 earnings report was impressive, with strong revenue growth and robust financial execution. However, the stock's decline after the report and the competitive landscape suggest caution. Given NVIDIA's valuation, strong momentum, and leadership in AI chip development, holding the stock might be the most prudent strategy. Investors should closely monitor the company's third-quarter results and potential export approvals for H20 chips to China to inform their investment decisions.

References

[1] https://www.nasdaq.com/articles/should-you-buy-sell-or-hold-nvidia-stock-post-strong-q2-earnings
[2] https://www.nasdaq.com/articles/nvidias-q2-sales-hit-46b-can-blackwell-ramp-deliver-54b-q3