Nvidia's Stock Drops Despite Record Earnings, Analysts Remain Bullish on AI Chip Demand

Nvidia's stock dipped despite record Q2 earnings of $46.7 billion, surpassing analysts' expectations. Adjusted earnings per share were slightly above estimates. Analysts remain bullish on the company's future growth in AI chips, particularly in gaming and automotive sectors. KeyBanc, Mizuho, and Truist have raised their price targets, highlighting Nvidia's leadership in AI chip market and potential growth.

Nvidia Corporation (NVDA) reported its second-quarter earnings for fiscal 2026, with revenue of $46.74 billion, a 56% year-over-year increase, and net income rising 59% to $26.42 billion. Despite these robust figures, the stock experienced a post-earnings dip, with shares slipping in extended trading. The data center segment's revenue fell short of expectations, but the company guided for $54 billion in Q3 revenues, higher than analyst expectations [1].

Adjusted earnings per share were $1.05, slightly above the $0.94 expected by analysts. The company's data center business, which centers around graphics processors (GPUs) and complementary products, generated $41.1 billion in revenue, up 56% from the year-ago period, although this was short of a StreetAccount estimate of $41.34 billion [2].

Nvidia's finance chief, Colette Kress, stated that the company expects between $3 trillion and $4 trillion in AI infrastructure spending by the end of the decade. The company's growth is driven by its data center business, which has seen year-over-year revenue growth exceed 50% for nine consecutive quarters since mid-2023 [3].

KeyBanc, Mizuho, and Truist have raised their price targets for Nvidia, highlighting the company's leadership in the AI chip market and potential growth. Despite the recent dip, analysts remain bullish on Nvidia's future, particularly in gaming and automotive sectors. The company's Blackwell and H100 chips have cemented its leadership in AI infrastructure, and its CUDA ecosystem creates a competitive moat [4].

However, the stock's 48.9x P/E ratio remains elevated, and geopolitical risks, such as the unimplemented H20 export deal with China and regulatory uncertainties, pose challenges. The Chinese government's investigations into Nvidia's operations and its 2020 Mellanox acquisition add to these risks [5].

For investors, the key lies in timing and risk tolerance. The current price reflects optimism about AI's future but also exposes holders to volatility if geopolitical or valuation risks materialize. As Jensen Huang notes, "The AI race is a marathon, not a sprint"—a reminder that Nvidia's long-term prospects remain intact, even as near-term uncertainties loom [6].

References:
[1] NVIDIA Announces Financial Results for Second Quarter [https://nvidianews.nvidia.com/news/nvidia-announces-financial-results-for-second-quarter-fiscal-2026]
[2] NVIDIA (NVDA) Stock Valuation, Peer [https://simplywall.st/stocks/us/semiconductors/nasdaq-nvda/nvidia/valuation]
[3] NVIDIA (NVDA) PEG Ratio - Stocks [https://mlq.ai/stocks/NVDA/peg-ratio/]
[4] NVIDIA (NasdaqGS:NVDA) Stock Valuation, Peer [https://simplywall.st/stocks/us/semiconductors/nasdaq-nvda/nvidia/valuation]
[5] NVIDIA CEO Huang calls China AI market a $50B opportunity [https://fortune.com/asia/2025/08/28/nvidia-earnings-china-jensen-huang-h20-trump-export-controls/]
[6] Could China's AI Supply Chain Expansion Spell Trouble for Nvidia? [https://www.investing.com/analysis/could-chinas-ai-supply-chain-expansion-spell-trouble-for-nvidia-200666126]