Nvidia’s Strong Quarter Falls Short of Lofty Expectations as Shares Slide

Nvidia (NASDAQ: NVDA) delivered another quarter of massive growth, but even strong numbers weren’t enough to satisfy Wall Street’s sky-high expectations. The chipmaker posted fiscal Q2 revenue of $46.7 billion, up 56% year-over-year and 6% sequentially, with adjusted EPS of $1.05 topping consensus estimates of $1.01. Gross margins came in at 72.7% on a non-GAAP basis, also slightly ahead of expectations. Still, the stock slid more than 3% after-hours to the $172 level, reflecting disappointment that the results didn’t deliver the “beat-and-raise” fireworks investors have come to expect. With Nvidia accounting for 7.2% of the S&P 500 by weight, the move carries significant implications for broader market sentiment.

Mixed Reaction Despite Beats The quarter broadly met expectations: revenue and EPS were modestly above consensus, gross margins were strong, and Q3 revenue guidance of $54 billion (plus or minus 2%) came in slightly ahead of the $53.5 billion analysts projected. Yet for a company that has become the emblem of AI-driven market euphoria, “slightly better” didn’t cut it. Data Center revenue, which now accounts for nearly 88% of Nvidia’s business, rose 56% year-over-year to $41.1 billion, but it came in just shy of the $41.3 billion estimate. That small miss in the company’s flagship segment dampened enthusiasm, particularly given that investors were hoping for a repeat of Nvidia’s historic upside surprises in prior quarters.

The company reaffirmed full-year guidance for non-GAAP gross margins in the mid-70% range, suggesting continued profitability strength, but that too was viewed as steady rather than groundbreaking. Guidance was constructive but not game-changing, with management projecting Q3 gross margins of roughly 73.5% and reiterating expectations to end FY26 in the mid-70s range.

Capital Returns and Balance Sheet Strength Nvidia also emphasized its commitment to returning capital to shareholders. The board approved an additional $60 billion to its share repurchase program—one of the largest buyback authorizations in corporate America—and announced the next quarterly dividend of $0.01 per share, payable October 2. During the quarter, the company returned $10 billion to investors, including $9.7 billion of repurchases. With $56.8 billion in cash, equivalents, and marketable securities on hand, Nvidia has ample resources to continue rewarding shareholders even as it invests heavily in its AI roadmap.

Segment Breakdown: Growth Broad, but Data Center Scrutinized The headline takeaway from the quarter is that Nvidia is still delivering broad-based growth across all segments, though investors zeroed in on Data Center performance.

• Data Center: Revenue rose to $41.1 billion, up 5% sequentially and 56% year-over-year. Within this, compute revenue slipped 1% sequentially to $33.8 billion as sales of H20 products fell $4 billion, offset by a 46% jump in networking revenue to $7.3 billion. Networking nearly doubled year-over-year, driven by adoption of NVLink fabrics and Ethernet solutions at hyperscalers. Still, the flat compute number—against expectations for acceleration—was a focal point of concern.
• Gaming: Gaming revenue of $4.3 billion grew 14% sequentially and 49% year-over-year, driven by RTX GPU demand and increased supply of Blackwell-based products. The segment’s rebound underscores resilience in consumer GPUs after a volatile cycle.
• Professional Visualization: Sales climbed 18% sequentially and 32% year-over-year to $601 million, reflecting strong workstation demand and AI-accelerated visualization workflows, particularly in notebooks.
• Automotive: Revenue reached $586 million, up 3% sequentially and 69% year-over-year, with growth fueled by adoption of self-driving compute platforms.
• OEM & Other: Though small in scale, this category jumped 56% sequentially and 97% year-over-year to $173 million, driven by a release of previously reserved H20 inventory and unrestricted sales outside China.

Product Commentary: Blackwell and H20 in Focus Nvidia highlighted the ongoing ramp of its Blackwell architecture, including Blackwell Ultra, which grew 17% sequentially and contributed across all customer categories, led by cloud service providers that now represent about half of Data Center revenue. Networking strength was attributed to NVLink fabrics powering GB200 and GB300 systems, as well as XDR InfiniBand adoption.

The company also disclosed it benefited from a $180 million release of previously reserved H20 inventory tied to $650 million of sales outside China. Crucially, Nvidia said there were no H20 sales to China-based customers in Q2. That admission puts the spotlight on tonight’s earnings call, where CEO Jensen Huang is expected to provide clarity on future China-related demand and potential impacts from U.S. export restrictions. Investors will be listening closely, given how significant Chinese hyperscalers have historically been to Nvidia’s AI GPU demand.

Margins, Expenses, and Cash Flow Margins rebounded sharply from the prior quarter, when Nvidia took a $4.5 billion charge tied to H20 excess inventory. Gross margin expanded nearly 12 points sequentially to 72.4%, though it was down about three points year-over-year as Blackwell systems carry different cost dynamics than Hopper HGX products. Operating expenses increased 38% year-over-year and 8% sequentially, reflecting higher compute and infrastructure costs and employee growth, but remained manageable relative to revenue growth.

Operating cash flow fell to $15.4 billion from $27.4 billion in Q1, reflecting $8.1 billion in tax payments, but the balance sheet remains formidable with nearly $57 billion in liquidity. Inventory climbed to $15 billion from $11.3 billion last quarter to support Blackwell Ultra’s ramp, while purchase commitments rose to $45.8 billion on new multi-year cloud service agreements.

Market and Technical Considerations At 7.2% of the S&P 500, Nvidia’s post-earnings selloff matters for more than just its shareholders. A 3–4% decline in Nvidia exerts a tangible drag on index performance, and with AMD and Broadcom also trading lower in sympathy, the broader semiconductor complex is under pressure. The question now becomes whether Jensen Huang can shift sentiment on the earnings call.

Technically, Nvidia closed the session at $172, sliding in the immediate aftermath of results. If investor enthusiasm fails to recover, the 50-day moving average around $169 looms as the next key support level. A break below that threshold could test confidence in the stock’s AI-led rally, which remains the defining narrative for equity markets this year.

The Bottom Line Nvidia once again delivered a blockbuster quarter in absolute terms, but against a backdrop of extraordinary expectations, the results underwhelmed. Slight beats on revenue, EPS, and guidance weren’t enough to offset the disappointment of a Data Center revenue miss and the absence of a major upside surprise. Gross margins were reaffirmed at strong levels, capital return programs were expanded in dramatic fashion, and growth remained broad across segments, yet the stock’s slide underscores how much perfection is already priced in.

As investors await Jensen Huang’s commentary, particularly on China sales and the trajectory of Blackwell adoption, the stakes are clear: Nvidia remains the single most important stock for both AI optimism and the broader U.S. equity market. Tonight’s call could determine whether shares stabilize above current levels or test the 50-day moving average in the days ahead.