Nvidia Beats Expectations but Shares Fall

Nvidia exceeded earnings and revenue expectations for Q2 FY2026, but its share price fell in after-hours trading as investors focused on weaker-than-expected performance in the data center segment and the absence of H20 chip shipments to China. In a market priced for perfection, even small gaps in key segments can trigger profit-taking. Meanwhile, indices trading remains volatile, with investors navigating concerns about sector-specific performance and broader market sentiment.

Nvidia Earnings: Key Results

Nvidia reported a record revenue of approximately $46.7 billion for Q2 FY2026, reflecting a 56% year-over-year increase and a 6% quarter-on-quarter growth. Adjusted (non-GAAP) earnings per share (EPS) were $1.05, while GAAP EPS stood at $1.08. The gross margin for GAAP was 72.4%, and for non-GAAP, it was 72.7%. Excluding the one-time $180 million H20 inventory release, the non-GAAP gross margin would have been 72.3%, and non-GAAP EPS would have been $1.04.

Data Center Performance and Investor Concerns

The data center revenue came in at $41.1 billion, accounting for 88% of total revenue. While demand for accelerated computing remained strong, the market’s attention shifted to the data center segment, where performance was just shy of optimistic forecasts. Specifically, the growth of the Blackwell data center platform was 17% sequentially, which was a positive, but not enough to offset concerns over weaker-than-expected demand in some areas.

H20 Shipments to China: A Key Miss

A notable disappointment in Nvidia’s Q2 results was the lack of H20 chip shipments to China, which had been previously factored into expectations. The Q3 revenue guidance has similarly excluded these shipments, which removed a potential upside for data center sales from the Chinese market. This lack of shipment further compounded concerns over Nvidia’s data center sales mix and near-term growth.

Q3 FY2026 Outlook and Revenue Forecast

Nvidia’s Q3 FY2026 revenue guidance stands at around $54.0 billion, with an expected GAAP gross margin of approximately 73.3% and a non-GAAP gross margin of about 73.5%. Despite the concerns about H20 sales, Nvidia remains optimistic about its growth trajectory, with continued investment in AI infrastructure, and is poised to continue its momentum into the next quarter.

Why Nvidia Shares Fell After Earnings Beat

Although Nvidia reported strong numbers, the share price fell between 3% and 5% after the earnings release. This drop was primarily due to the soft performance in the data center segment and the exclusion of H20 shipments to China, which reduced the near-term growth outlook. In a market where expectations are set extremely high for a leading AI infrastructure provider, even slight gaps in performance can lead to profit-taking after a strong run.

The Future: What Could Shift Investor Sentiment?

• China H20 Shipments: A clearer path for compliant H20 shipments to China would reduce uncertainty and potentially provide a boost to Nvidia’s data center growth in the short term.

• Blackwell Platform Ramp: Ongoing success with the Blackwell platform and the AI infrastructure buildout could reassure investors and validate Nvidia’s guidance for Q3 and beyond.

• Broader AI Demand: More evidence of sustained demand from cloud providers, large enterprises, and sovereign governments could further support Nvidia’s long-term growth assumptions.

Share Buybacks and Capital Return Strategy

Nvidia also announced an additional $60 billion buyback authorization, aimed at supporting shareholder value and cushioning potential stock price volatility. So far, Nvidia has returned over $24 billion to shareholders through buybacks and dividends in FY2026.

Conclusion: A Strong Long-Term Outlook, but Short-Term Uncertainty

Despite missing some near-term expectations, Nvidia remains a leader in the AI and data center space, with robust growth prospects. The exclusion of China H20 shipments and the softer-than-expected data center performance may weigh on sentiment temporarily, but Nvidia’s long-term fundamentals remain strong, especially as the AI market continues to expand.