Nvidia’s Q2 FY2026 earnings beat Wall Street expectations with record revenue of $46.7 billion (up 56% year-over-year) and adjusted EPS of $1.05, surpassing estimates of $46.02 billion and $1.01, respectively.
Data center revenue, comprising 88% of total sales, reached $41.1 billion, up 56% from last year but slightly below the $41.3 billion consensus. Despite the beat, shares fell 3-7% in after-hours trading due to high investor expectations, a narrower beat margin compared to prior quarters, and no H20 chip sales to China due to export restrictions.
Nvidia’s Q3 revenue guidance of $54 billion (±2%) was in line with expectations, but the lack of China sales and a softer data center performance raised concerns about the AI rally’s sustainability. Nvidia’s Q2 FY2026 earnings beat estimates but triggered a 3-7% drop in after-hours trading, reflecting market sensitivity to high expectations and specific headwinds.
Nvidia’s stock has been priced for perfection due to its central role in the AI boom, with a forward P/E ratio significantly higher than peers. The narrower-than-expected beat (revenue 1.4% above consensus vs. 10-15% in prior quarters) disappointed investors, leading to the after-hours sell-off.
Register for Tekedia Mini-MBA edition 19 (Feb 9 – May 2, 2026): big discounts for early bird.
Tekedia AI in Business Masterclass opens registrations.
Join Tekedia Capital Syndicate and co-invest in great global startups.
Register for Tekedia AI Lab: From Technical Design to Deployment (next edition begins Jan 24 2026).
The in-line Q3 guidance of $54 billion (±2%) suggests robust growth (44% YoY) but lacks the upside surprise investors have come to expect, signaling potential peaking of the AI-driven rally in the short term. Data center revenue ($41.1 billion, 88% of total) remains Nvidia’s growth engine, driven by demand for AI chips like the H100 and upcoming Blackwell architecture.
However, the slight miss on data center consensus ($41.1B vs. $41.3B) and flat sequential growth from Q1 raise concerns about whether hyperscalers are nearing saturation or optimizing existing GPU deployments. Investors may question if AI infrastructure spending is slowing, especially as enterprise AI adoption lags behind hyperscaler investments.
Gross margins held strong at 75.7%, slightly above estimates, reflecting Nvidia’s pricing power and limited competition in high-end AI chips. However, rising production costs for Blackwell chips and potential supply constraints could pressure margins in future quarters.
Capex guidance of $7-8 billion for FY2026 (down from $8.7B in Q2) suggests confidence in supply chain improvements but may also signal a cautious outlook on near-term demand. Data center revenue, primarily from AI GPUs, grew 56% YoY but was flat sequentially, indicating a potential plateau in hyperscaler spending.
Major clients like Microsoft, Meta, and Google are still investing heavily in AI infrastructure, but the slight miss suggests demand may be stabilizing or shifting toward inference-focused chips, which Nvidia also supplies but at lower margins. Continued strength in data center revenue underscores Nvidia’s dominance in AI hardware, with no immediate threat from competitors like AMD or custom chips from hyperscalers.
Flat sequential growth and a small miss vs. consensus fuel concerns that the AI infrastructure buildout may be reaching a temporary ceiling, particularly if enterprise AI adoption doesn’t accelerate to justify further hyperscaler capex. U.S. export controls blocked Nvidia from selling its H20 chip (designed for China to comply with restrictions) in Q2, resulting in zero China data center revenue.
China previously accounted for 20-25% of Nvidia’s data center sales, a significant loss. The absence of China sales directly contributed to the data center miss and tempered Q3 guidance. Without export restrictions, Nvidia could have exceeded expectations by a wider margin.
Ongoing U.S.-China tensions and potential tightening of export controls (e.g., on software or cloud access) pose a persistent risk to Nvidia’s global revenue. China’s push for domestic AI chips (e.g., Huawei’s Ascend) could further erode Nvidia’s market share there.
Nvidia is developing compliant chips like the B20, but adoption is slow, and margins are likely lower than for flagship products like the H100. Nvidia’s performance is a bellwether for the AI sector. The after-hours drop may weigh on other AI-related stocks (e.g., AMD, TSMC) as investors reassess the pace of AI growth.
Nvidia’s confidence in resolving Blackwell supply issues by Q4 is positive, but any delays could exacerbate investor concerns, especially with competitors like AMD ramping up MI300 production. The market’s reaction reflects a shift toward scrutinizing Nvidia’s ability to sustain 50%+ growth rates.
If enterprise AI adoption accelerates or Blackwell ramps successfully, sentiment could rebound. Conversely, further export restrictions or demand slowdowns could prolong volatility. The loss of China revenue and flat sequential data center growth amplify concerns about the AI rally’s sustainability, contributing to the after-hours sell-off.
While Nvidia’s fundamentals remain strong, its high valuation leaves little room for error, and investors will closely watch Blackwell adoption and geopolitical developments in Q3.