In Nvidia’s Report, One Detail Has Been Declining for Two Quarters

Good business results of the company do not necessarily lead to an increase in the price of its stock, as those unfamiliar with the stock market might think, as Nvidia has once again demonstrated. Futures contracts on the American technology stock index Nasdaq slightly weakened on Thursday morning after the company at the center of the artificial intelligence development trend released its financial report for the second quarter the day before.

However, despite the fact that Nvidia’s revenue growth rate above 50 percent continued for the ninth consecutive quarter, one detail was enough for the stock price to drop by more than two percent in after-hours trading, to just under $178. Otherwise, after tripling last year, the stock price has recorded a 35 percent increase this year.

Investors found the reason for disappointment in the data center business results, which have been weaker than expected for the second consecutive quarter. Nvidia recorded a 56 percent revenue growth in that segment, reaching $41.1 billion. However, analysts had expected $41.3 billion.

This business consists of selling graphics processors to large cloud computing service providers. At the analysts’ conference, Chief Financial Officer Colette Kress explained that sales in the cloud computing segment of $33.8 billion decreased by one percent compared to the previous quarter. The reason for the decline was a $4 billion drop in sales of the H20 chip, specifically designed for sale exclusively in the Chinese market.

This chip is based on somewhat older architecture compared to Nvidia’s latest Blackwell chips, and the company produced it to comply with U.S. government export restrictions on that technology to China, a fierce technological rival of the U.S. It is worth noting that Nvidia recently reached an agreement with the Trump administration to obtain permits for exporting H20 chips to China, in return for paying 15 percent of sales into the budget.

Total revenues of $46.7 billion increased by 56 percent and exceeded expectations of $46.1 billion. Although the annual growth rate of revenue remains above 50 percent, analysts noted that it is also the slowest in the series of nine quarters. The profit of $26.4 billion, which jumped by nearly 60 percent, was also better than expected. Translated into earnings per share (EPS), the profit amounts to $1.05 compared to the expected $1.01. Regarding future results, Nvidia announced that it expects revenues of $54 billion in this quarter, plus or minus two percent, while analysts forecast slightly lower at $53 billion.

For Nvidia’s future, there should be no cause for concern, despite the fact that competition, especially from China, is strengthening every day. For instance, the Chinese company Cambricon announced earlier this week that its semi-annual revenues surged an incredible 4000 percent to $403 million. Colette Kress stated that Nvidia expects that by the end of this decade, between three and four trillion dollars will be invested globally in artificial intelligence infrastructure.

Nvidia’s results were released about a month after technology giants like Meta, Alphabet, Microsoft, and Amazon published their financial reports. All of them are customers of Nvidia’s components, and they are already investing tens of billions of dollars in developing artificial intelligence infrastructure.

Despite this, Nvidia has not put all its cards on artificial intelligence components alone. It sees significant potential for additional earnings in robotics. This business segment is still marginal in the company’s revenues – $586 million in the second quarter – but sales grew by an impressive 69 percent year-on-year. Finally, shareholders should also be pleased that the Board of Directors decided to invest an additional $60 billion in stock buybacks. During the second quarter, Nvidia invested just under $10 billion in repurchasing its own shares.