TLDR
- Nvidia reports Q2 earnings Wednesday with expected revenue of $46.2B and EPS of $1.01
- Company expects $8B hit from China chip restrictions despite Trump lifting the ban and adding 15% fee
- Stock up 35% year-to-date and 44% over 12 months, becoming first company to reach $4 trillion market cap
- Data center revenue expected at $41.2B vs $26.2B last year, driven by GB200 super chip shipments
- Gross margin guidance is the key metric to watch, having declined for four consecutive quarters
Nvidia closes out Big Tech earnings season Wednesday with its second quarter results. The chipmaker reports after market close with Wall Street expecting strong numbers.
Analysts forecast revenue of $46.2 billion and adjusted earnings per share of $1.01. This compares to $30 billion in revenue and $0.68 EPS in the same quarter last year.
The numbers represent 53% revenue growth and 49% earnings growth year-over-year. However, this marks a slowdown from the triple-digit growth rates Nvidia posted during the AI boom’s early days.
China Policy Changes Create Revenue Headwind
Trump administration moves created uncertainty around China sales. The president initially banned chip exports to China in April, then reversed the decision in July.
In August, Trump added a 15% fee on sales to China. Nvidia warned during its Q1 earnings call that it expects an $8 billion hit to Q2 results from these restrictions.
The company received approval to export its H20 chip to China after months of restrictions. Investors want updates on how this affects full-year guidance.
Trump also announced 100% tariffs on semiconductor imports unless companies build in the US. Nvidia should be exempt from these tariffs.
The Chinese government recently warned local companies against using Nvidia chips. Officials cited potential “backdoor” security risks, which Nvidia denies.
Data Center Segment Drives Growth Expectations
Data center revenue is expected to reach $41.2 billion versus $26.2 billion last year. This segment powers most of Nvidia’s growth as companies build AI capabilities.
Gaming revenue, the company’s second-largest segment, should hit $3.8 billion. This remains much smaller than the data center business.
Investors want updates on GB200 super chip shipments. KeyBanc analysts believe manufacturing yields are approaching 85% for server makers.
The firm expects rack shipments to exit Q4 at 15,000-17,000 units. Full-year Grace Blackwell rack shipments could reach 30,000 versus earlier estimates of 25,000.
CEO Jensen Huang will provide updates on the Blackwell Ultra chip ramp. The company targets annual chip releases to maintain its competitive edge.
Gross Margin Becomes Critical Watch Point
Gross margin guidance represents the most important metric for Wednesday’s report. This measure shows how much profit Nvidia makes on each chip sale.
The company’s gross margin peaked at 78.4% during the AI boom’s early stages. High demand and limited supply allowed Nvidia to charge premium prices of 100% to 300% above competitors.
Recent quarters show margin pressure as competition increases. Excluding China-related charges, gross margins declined for four straight quarters.
External competitors like AMD’s Instinct chips pose threats. Huawei’s AI solutions also compete in the Chinese market.
Internal competition may prove more challenging. Nvidia’s biggest customers are developing their own AI chips for internal use.
These custom chips cost less and take up data center space that might otherwise use Nvidia hardware. Companies like Google, Amazon, and Microsoft all have internal chip programs.
Options traders expect Nvidia’s market value to swing about $260 billion after earnings. This suggests investors feel uncertain about the results despite recent strong performance.
Nvidia shares gained 1% Tuesday and trade up 35% year-to-date. The stock hit record highs as the company became the first to reach $4 trillion market capitalization in July.
The company is developing a new Blackwell-based chip for China that would need Trump administration approval. This could provide future revenue upside if approved.
Wedbush raised its price target from $175 to $210 citing strong demand feedback. Baird analysts also expressed optimism about July quarter results based on GB200 sales strength.
