Leading AI chip designer NVIDIA (NVDA, Financial) exceeded top and bottom-line estimates in Q2, driven by growing demand for AI. The company highlighted new AI use cases across industries such as advertising, education, healthcare, and robotics. Additionally, NVIDIA announced an extra $50 billion for share buybacks, doubling last year's figure.
However, shares are struggling today due to profit-taking prompted by high expectations. While NVIDIA's past quarterly reports have consistently surpassed estimates since May 2023, the Q2 upside was slightly lighter. The adjusted EPS of $0.68 exceeded analyst forecasts by a smaller margin than last quarter. Moreover, the low end of NVIDIA's Q3 revenue outlook of $31.85-33.15 billion was only slightly above consensus.
Despite this, NVIDIA's Q2 report was impressive, highlighting sustained AI demand.
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Revenue surged by 122.4% year-over-year to $30.04 billion. The Data Center segment was a standout, with a 154% year-over-year increase in revenue, driven by strong demand for the Hopper GPU platform. All other segments also posted year-over-year growth in Q2, with Gaming up 16%, ProV up 20%, and Automotive up 37%.
- New product categories performed well, with Spectrum-X Ethernet for AI doubling its revenue from Q1. Software is projected to reach a $2.0 billion annual run rate this year, mainly supported by NVIDIA AI Enterprise.
- Despite export restrictions on chips to China, NVIDIA maintained a competitive presence in the region. Management noted that sales to China, as a percentage of total Data Center revenue, remained below pre-export curb levels. However, revenue in the region grew sequentially and significantly contributed to overall Data Center revenue.
- NVIDIA debunked rumors of delays for its Hopper successor, with Blackwell production set to begin in Q4 and continue through FY26. The company expects to ship several billion dollars in Blackwell revenue in Q4, with demand outstripping supply, continuing into next year. Additionally, Hopper shipments are expected to increase during the second half of 2025, complementing Blackwell.
NVIDIA's Q2 results underscore the strong demand for AI. Major tech firms like Microsoft (MSFT, Financial) and Meta Platforms (META, Financial) are investing billions in AI infrastructure, relying on NVIDIA's chips. While the return on investment is a growing concern due to significant AI spending, NVIDIA noted that customers are seeing immediate returns. Although ROI concerns may persist in the short term, NVIDIA's leadership in AI offers attractive long-term potential, provided AI continues to deliver meaningful gains.
