The most recent quarter delivered explosive money era and powerful steerage, with actual China threat and a wealthy valuation to weigh.
Crowd-pleasing development is not new for Nvidia (NVDA -2.78%). However the AI and graphics chip firm’s late-August replace nonetheless managed to show heads. Income rose sharply yr over yr, and the info middle engine stored buzzing. Administration additionally issued bullish steerage for the present quarter.
Positive, shares are down because the report. However bear in mind: The expansion inventory remains to be up 28% yr up to now and is up greater than 240% because the starting of final yr. With a run like this in a rearview mirror, Nvidia must ship spectacular numbers — and it did.
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Current outcomes have been robust and cash-rich
Nvidia’s momentum in AI infrastructure continued. Fiscal second-quarter income was $46.7 billion, up 56% yr over yr and 6% sequentially. Knowledge middle income hit $41.1 billion, up 56% yr over yr and 5% sequentially. Profitability stays best-in-class. Non-GAAP gross margin was 72.7%.
Underneath the hood, traits have been “combined” however wholesome. I put “combined” in quotes as a result of buyers are so used to spectacular outcomes from Nvidia that they usually decide the corporate’s development on sequential traits as a substitute of year-over-year traits. On this entrance, there was one space the place the development wasn’t constructive sequentially. Sure, Blackwell knowledge middle income grew 17% sequentially as the brand new platform ramps. However compute income dipped 1% sequentially due to a $4 billion discount in H20 gross sales (extra on this later). In the meantime, networking jumped 46% as NVLink materials, InfiniBand, and Ethernet AI buildouts accelerated. That blend shift issues. It reveals prospects aren’t simply shopping for GPUs — they’re constructing full AI methods.
Money era stays a significant a part of the story. Free money movement was $13.5 billion within the quarter and $39.6 billion for the primary half of fiscal 2026. Money, money equivalents, and marketable securities ended Q2 at $56.8 billion. With this firepower, Nvidia returned $10.0 billion in Q2 via repurchases and dividends (primarily repurchases) and approved an extra $60 billion for buybacks. These are elite numbers for any giant cap, and so they give administration flexibility to speculate and to return capital.
Steering and dangers set the near-term tone
The near-term outlook reinforces the expansion narrative. Administration guided Q3 FY26 income to about $54 billion, plus or minus 2%. It additionally expects non-GAAP gross margin of roughly 73.5% and continues to see exit-year margins within the mid-70% vary. Impressively, this steerage assumes zero H20 shipments to China. That final element is essential: There have been no H20 gross sales to China in Q2, and administration’s Q3 outlook once more excludes them.
This creates a clear base case — development with out a China carry. If export restrictions ease or product roadmaps adapt, upside may emerge. If they do not, the enterprise nonetheless expects to develop via international demand for accelerated computing, the Blackwell ramp-up, and networking connected to bigger AI clusters.
However issues get rather less upbeat once we begin speaking about valuation. The inventory’s present price-to-earnings a number of of 49 bakes in years of outstanding execution and continued development, all from a base of extraordinary revenue margins and an enormous income base. Driving the purpose residence about Nvidia’s overly wealthy valuation, contemplate that its market cap of about $4.2 trillion as of this writing provides the corporate a free money movement yield of solely about 2%. Given AI’s potential, dwelling as much as this valuation is definitely a doable consequence. However the valuation leaves much less room for disappointments in provide, aggressive responses from rivals, potential strikes from its prospects to de-risk their dependence on Nvidia, or a pause in AI spending.
So, must you purchase the inventory now?
Nvidia’s quarter checked the appropriate containers: speedy top-line development, elite margins, large free money movement, and assured steerage. As well as, the stability sheet and repurchase firepower add help on pullbacks. However the dangers arguably demand a decrease valuation earlier than buyers ought to contemplate pulling the set off. The dangers are vital, together with ongoing China restrictions, potential lumpiness as product cycles and buyer combine shift, and a valuation that calls for continued outperformance.
For those who already personal the inventory with a long-term thesis, this report is nice information and should assist justify persevering with holding shares. For brand new cash, nevertheless, I would scale in moderately than chase — nibbling on volatility whereas letting the basics and steerage do the speaking over time.
Daniel Sparks and his shoppers haven’t any place in any of the shares talked about. The Motley Idiot has positions in and recommends Nvidia. The Motley Idiot has a disclosure coverage.
