NVIDIA posts $26B profit on record $46.7B revenue in Q2
What's the story
NVIDIA, the world's leading chip manufacturer, has reported quarterly earnings that exceeded expectations. The California-based company reported profit of $26.4 billion on record revenue of $46.7 billion in the June quarter. The results were driven by strong demand for chips from tech giants powering AI datacenter computing. However, despite the positive financial results, NVIDIA's shares fell more than 3% in after-market trading due to fears of an AI chip spending bubble and its stalled business in China.
Revenue dip
Decline in data center revenue
Despite the overall revenue growth, NVIDIA's earnings report revealed a 1% decline in revenue from its Data Center compute products, including its popular graphics processing units (GPUs). The decrease was largely due to a $4 billion drop in sales of H20 chips—specialized processors designed for the Chinese market. For the current quarter, NVIDIA has projected $54 billion in revenue but without factoring any H20 sales.
Investment doubts
Concerns about AI spending bubble
NVIDIA's high-end GPUs are still in great demand from tech giants building data centers for AI applications. However, there are growing concerns among investors about the sustainability of these massive AI investments. Jacob Bourne, an analyst at eMarketer, said "the data center results, while massive, showed hints that hyperscaler spending could tighten at the margins if near-term returns from AI applications remain difficult to quantify."
Tax impact
US-China tensions over chip sales
Earlier this month, US President Donald Trump announced that NVIDIA and its rival AMD would pay 15% of its revenues from sales of certain AI chips to China. The H20 chips were previously targeted under export restrictions but are now deemed "obsolete" by Trump. In response, Beijing has raised national security concerns over NVIDIA chips and urged Chinese businesses to use local semiconductor suppliers instead.
Market insights
China market potential
NVIDIA CEO Jensen Huang has spoken about the potential of the China market, estimating it to be a $50 billion opportunity for NVIDIA this year. He said, "There is interest in our H20s; we have supply ready to ship." However, he also acknowledged that several geopolitical issues are still pending between governments and companies trying to determine their purchases and future plans.