NVIDIA: The Universe's Top Stock, Is Not Being Explosive Enough a Crime?

NVIDIA (NVDA.O) released its Q2 FY2026 financial report (ending July 2025) in the early morning of August 28, Beijing time, after the U.S. stock market closed. The details are as follows:

1. Core Operating Metrics: $NVIDIA(NVDA.US) reported total revenue of $46.7 billion this quarter, compared to market expectations of $46.1 billion. The quarter-over-quarter increase was $2.7 billion, mainly driven by the data center and gaming businesses. Gross margin was 72.4%, compared to market expectations of 71.9%. The company's gross margin in the previous quarter had a significant drop, mainly due to a write-down of approximately $4.5 billion in inventory for the H20 chip. Excluding this unexpected event, the gross margin in the previous quarter would have been around 71%. This quarter's improvement was mainly driven by the increased production of the GB series.

2. Data Center: This quarter's revenue was $41.1 billion, up 69.4% year-over-year, with approximately $650 million of H20 sales to regions outside China this quarter. Due to the H20 ban, there was no revenue contribution from H20 sales to China this quarter. With approximately $4.6 billion of related revenue included in the first quarter, the total revenue increase was about $7 billion. Excluding the $700 million increase from the gaming business, the data center business increase driven by products like the GB series reached approximately $6.3 billion.

In detail: This quarter's computing revenue was $33.84 billion, and networking revenue was $7.25 billion. The quarter-over-quarter growth in computing revenue slowed, mainly due to the impact of the H20 sales ban to China. As downstream customers are more eagerly anticipating the mass production of the GB300 product, various companies have also gradually increased their capital expenditures for the second half of the year.

3. Gaming Business: This quarter's revenue was $4.29 billion, up 49% year-over-year, mainly benefiting from the launch of the RTX50 series products. Compared to AMD's quarterly revenue of about $1 billion, NVIDIA still holds a significant advantage in the gaming graphics card market.

4. Profit: The company's core operating profit this quarter was $28.4 billion, up 52.6% year-over-year, with the core operating profit margin rebounding to 60.8%. The decline in core operating profit in the previous quarter was mainly due to the $4.5 billion impact of the H20 inventory write-down. With the increased production of the GB series products, the company's core operating profit is expected to continue growing in the second half of the year.

5. Next Quarter Guidance: The company expects next quarter's revenue to be $54 billion (excluding expectations for H20 sales to China), a quarter-over-quarter increase of $7.3 billion, compared to market expectations of $53.2 billion; next quarter's gross margin (GAAP) is expected to be 73.3%, a quarter-over-quarter increase of 0.9 percentage points, compared to market expectations of 72.1%. Driven by the GB series product cycle, the company's revenue and gross margin in the second half of the year are expected to continue improving.

Dolphin Research's Overall View: Overall in line with expectations, but the market hopes to see an outperformance

Previously, the market expected NVIDIA's revenue to be between $46 billion and $47 billion, and the company delivered $46.7 billion this quarter, basically meeting market expectations. Since the company's Q1 revenue of $44 billion included about $4.6 billion from H20, excluding this factor, the Q2 revenue increase would be around $7 billion, mainly driven by the increased production of the GB series.

With major cloud service providers increasing their capital expenditure plans and the start of the Blackwell product cycle, the market is more focused on the company's guidance for the next quarter. The company expects next quarter's revenue to reach $54 billion, with buy-side market expectations generally raised to $54-55 billion, and the company's guidance only reaching the lower end of expectations. As the production of the GB series increases, the company's gross margin for the next quarter is also expected to rise to 73.3%, in line with the company's year-end gross margin recovery to 75%.

It is noteworthy that due to uncertainties such as U.S. government approvals, the company's current guidance does not include revenue from H20 sales to China. If H20 or custom Blackwell products are allowed to be shipped later, there is still an opportunity for additional increments for the company.

The three main core focus points affecting NVIDIA's stock performance are capital expenditures by major cloud service providers, the progress of Rubin products, and the situation of the China business.

a) Capital Expenditure by Major Cloud Service Providers (Core Performance Driver): Several major cloud service providers have raised their full-year capital expenditure plans after the Q2 earnings report, Dolphin Research expects the combined capital expenditure of the four major core cloud providers (Google, Meta, Microsoft, and Amazon) to reach approximately $400 billion in 2025, with a year-over-year growth rate of nearly 60%.

Especially Google, Meta, and Microsoft have significantly increased their investment expectations for the second half of the year in their communications, indicating that the demand for AI servers and related needs remain strong, which is also the core driver of NVIDIA's current performance.

b) Rubin Product Progress: The company announced its subsequent product roadmap in March, and as the GB300 enters mass production, part of the market's attention has shifted to Rubin products. The company previously disclosed that the Vera Rubin NVL144 will be launched in the second half of 2026, with performance 3.3 times that of the GB300 NVL 72, demonstrating NVIDIA's product iteration capability.

The progress of Rubin products is also a focus for investors, and if subsequent progress exceeds expectations, it can continue to boost market confidence.

c) Impact of the China Market: NVIDIA has announced that it has obtained export licenses for H20, which is expected to increase the company's revenue in the second half of the year. However, some customers have been discouraged from purchasing H20 chips, and the Trump administration will also charge a 15% license fee, which still brings uncertainty to the final shipment of H20. Therefore, the company's current revenue guidance does not consider the part of H20 sales to China. Even so, NVIDIA will continue to develop Blackwell products for the Chinese market.

Combining the capital expenditure plans of major companies and the mass production shipments of the GB series, NVIDIA is still in a rising phase of AI demand and product cycle prosperity. The company's story in the AI chip track will continue to unfold. Dolphin Research also provided specificrecommendations in early July, and the stock price has continued to rise to around $180.

The company's stock price rose from $90 to $160 due to market mispricing opportunities; from $160 to $180 or $200, it also needs to price in additional computing power demand in new scenarios such as sovereign AI, enterprise AI, and humanoid robots outside of the cloud service provider TAM. If it can stabilize above $200, it will require a grander computing power narrative such as sovereign AI and humanoid robots to quickly materialize.

With the increased production of the GB series, the performance driven by new products will also begin to be released in the second half of the year, so the market is mainly focused on the company's performance in the next few years. Combining the company's current market value ($4.43 trillion), it corresponds to approximately 29 times PE for FY2027 net profit (assuming revenue +32%, gross margin 75%, tax rate 15.3%). Under the current GB product cycle, the market's valuation range for the company has generally been raised to 30-35 times PE.

As for the AI demand and capital investment situation of major companies three years later, there is a significant divergence in market expectations. But in the current new product cycle, the market is more focused on recent operating performance and qoq incremental situations. As long as NVIDIA can continue to deliver outperformance in quarter-over-quarter growth, the market will remain confident in the company.

After major companies raised their capital expenditure targets this quarter, the market has also raised NVIDIA's performance expectations, which has been reflected in the recent stock price. However, in this earnings report, the company only met market expectations and did not provide more outperformance. NVIDIA's stock price rose from below $100 to $160, which has basically digested the impact of the China market H20 event. After major companies successively raised their capital expenditure targets, the stock price further moved to around $180. After the above market expectations are priced in, further stock price increases still require the company to provide more incremental information on sovereign AI, Rubin progress, robots, etc., to assist.

Dolphin Research's specific analysis of NVIDIA's earnings report is detailed below:

I. NVIDIA's Business Situation

With the continuous growth of NVIDIA's data center, it has now become the largest part of the company's revenue, accounting for nearly 90%. The gaming business, which was previously the main source of revenue, has been compressed to about 10%.

Looking at specific businesses:

1) Data Center Business: It is currently the main focus, with its main products including H100, A100, Blackwell, and other computing power chips. The company's core customers are major cloud service providers such as Amazon, Microsoft, and Google;

2) Gaming Business: The company remains a leader in the discrete graphics card market, with its main products being the RTX40 and RTX50 series, and its main customers are gamers and PC manufacturers;

3) Professional Visualization and Automotive Business: Both businesses currently have a small share, each accounting for about 1-2%. The main customers of the professional visualization business include Pixar, Disney, etc. The automotive business mainly focuses on Orin chips and Thor chips, with customers mainly being car companies such as BYD, Xiaomi, and Li Auto.

II. Core Performance Indicators: Overall in Line with Expectations

2.1 Operating Revenue: In Q2 FY2026 (i.e., 2Q25), NVIDIA achieved revenue of $46.74 billion, up 55.6% year-over-year, compared to market expectations of $46.1 billion. This quarter's growth was mainly driven by the data center and gaming businesses, with the gaming business performing above expectations due to the RTX50 series products; while the data center business still grew by $2 billion quarter-over-quarter despite the H20 ban, the business performance was in line with market expectations.

Looking ahead to the next quarter, the company provided revenue guidance of $54 billion, which still does not include the part of H20 sales to China. The next quarter's revenue is expected to grow by about $7.3 billion quarter-over-quarter, mainly driven by the increased production of the GB series.

2.2 Gross Margin (GAAP): In Q2 FY2026 (i.e., 2Q25), NVIDIA achieved a gross margin (GAAP) of 72.4%, compared to market expectations of 71.9%. The "flash crash" in the company's gross margin in the previous quarter was mainly due to the impact of the H20 ban, with the company writing down nearly $4.5 billion in inventory and related expenses.

Excluding the impact of the H20 unexpected event, adding back the $4.5 billion inventory write-down, the company's gross margin in the previous quarter would return to around 71%. This quarter's gross margin is actually still an improvement quarter-over-quarter (71% -> 72.4%), mainly due to the increased production of the GB series and reduced supply chain costs.

For the next quarter, the company expects a gross margin (GAAP) of 73.3%, compared to market expectations of 72.1%. The impact of the H20 event has been mitigated by the company's previous inventory write-down, with little impact on future gross margins. With the increased production of the GB series products, the company expects the year-end gross margin to recover to around 75%.

III. Core Business Progress: Product Cycle Driven by the GB Series

Driven by AI and other demands, the revenue share of NVIDIA's data center business (Compute+Networking) has reached nearly 90%, while the share of the gaming business has been squeezed to below 10%.

3.1 Data Center Business: In Q2 FY2026, NVIDIA's data center business achieved revenue of $41.1 billion, up 56.4% year-over-year. The data center business remains the company's main focus, with this quarter's growth mainly driven by the increased production of the GB series products, which are primarily used for training and inference of large language models, recommendation engines, and generative AI applications.

Specifically: ① Computing business revenue this quarter was $33.8 billion, a quarter-over-quarter decrease of $3.1 billion, mainly due to the impact of the H20 ban; ② Networking business revenue this quarter was $7.25 billion, a quarter-over-quarter increase of $2.29 billion.

This quarter's data center business growth was mainly driven by the networking business, while the computing business was impacted by the H20 ban by approximately $4 billion. Excluding this impact, the computing business revenue would have increased by nearly $3.5 billion this quarter.

The core driver of NVIDIA's data center business remains the demand for AI servers from cloud service providers. In Q2 2025, the combined capital expenditure of the four major core cloud providers reached $95.8 billion, up 64.4% year-over-year. Considering the company's data center business growth rate of 70% year-over-year (excluding the impact of H20), NVIDIA's share in the capital expenditure of giants is still increasing.

Based on communications with the management of the four companies, Dolphin Research expects the four major providers' capital expenditure in 2025 to reach nearly $400 billion, up 58% year-over-year, which also provides assurance for the company's continued performance growth in the second half of the year.

Currently, in the data center market, NVIDIA, AMD, and Intel are still the main players in core chips. Comparing the related businesses of the three, it can be seen that: with its leading computing power products, NVIDIA's share in the data center market is continuously increasing. With the increased production of the GB series products, cloud service providers are more inclined towards NVIDIA's products in core chip procurement.

3.2 Gaming Business: In Q2 FY2026, NVIDIA's gaming business achieved revenue of $4.29 billion, up 48.9% year-over-year. This was mainly driven by the shipment of the company's RTX50 series products. The gaming business currently accounts for less than 10% of the company's total revenue, with the company's current performance focus still on the data center business.

In terms of the gaming business, compared to AMD's gaming business quarterly revenue of $1.1 billion, NVIDIA still holds a significant leading advantage in the gaming graphics card market.

IV. Key Financial Indicators: Stable Expense Ratio, Profit Margin Rebound

4.1 Core Operating Profit Margin

In Q2 FY2026, NVIDIA's core operating profit margin was 60.8%, showing a significant rebound. The company's previous quarter was affected by the H20 inventory write-down, leading to a "flash crash" in gross margin.

Analyzing the composition of the core operating profit margin, the specific changes are as follows:

"Core Operating Profit Margin = Gross Margin - R&D Expense Ratio - Sales, Administrative, and Other Expense Ratio"

1) Gross Margin: This quarter was 72.4%, with the previous quarter's decline affected by inventory write-downs, this quarter returned to above 70%. Excluding the write-down impact, the previous quarter's gross margin would return to around 71%, and this quarter's gross margin is still improving, mainly driven by the GB series products;

2) R&D Expense Ratio: This quarter was 9.2%. Although the company's R&D investment increased by $300 million quarter-over-quarter, the R&D expense ratio remained relatively stable due to revenue growth;

3) Sales, Administrative, and Other Expense Ratio: This quarter was 2.4%, remaining stable.

The company expects the next quarter's operating expense guidance to continue rising to $5.9 billion, and considering the revenue guidance, the next quarter's operating expense ratio will remain at 11%, maintaining a relatively healthy state.

4.2 Core Operating Profit

In Q2 FY2026, NVIDIA's net profit was $26.4 billion, up 59.2% year-over-year. This quarter's net profit margin was 56.5%.

Since net profit is also affected by non-operating items, Dolphin Research is relatively more focused on the company's core operating profit (gross profit - R&D expenses - sales, administrative, and other expenses). The company's core operating profit this quarter was $28.4 billion, up 52.6% year-over-year. The core operating profit margin rebounded to 60.8%. The decline in the profit margin in the previous quarter was mainly due to the impact of the H20 inventory write-down. With the recovery of the gross margin, the company's core operating profit margin remains stable above 60%.