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Leading AI chip designer NVIDIA (NVDA -2%) exceeded top and bottom-line estimates in Q2 (Jul), posting another quarter of robust growth as the demand for AI snowballs. NVDA noted that many industries, including advertising, education, healthcare, and robotics, are uncovering use cases for Gen AI. NVDA also announced an additional $50 bln for share buybacks, double what it approved last year.

However, shares are struggling today as lofty expectations spur moderate profit-taking. NVDA's past quarterly reports have been outstanding, blowing estimates out of the water at nearly every turn since May 2023. However, NVDA's Q2 upside was a tad lighter than in the past. Its adjusted EPS of $0.68 surpassed analyst forecasts by a slimmer margin than last quarter, even when compensating for the 10-for-1 split in June. Furthermore, the low end of NVDA's Q3 (Oct) revenue outlook of $31.85-33.15 bln was only mildly higher than consensus, unlike in previous quarters.

That said, NVDA's Q2 report was impressive, containing plenty of highlights pointing to sustained demand for AI.

• Revenue continued to swell, ballooning by 122.4% yr/yr to $30.04 bln despite beginning to lap challenging numbers from the year-ago period. NVDA's Data Center segment remained the notable standout, posting a 154% pop in revs yr/yr, aided by unwavering demand for the company's Hopper GPU platform. Unlike in recent quarters, all other segments also posted yr/yr growth in Q2, with Gaming jumping by 16%, ProV by 20%, and Automotive by 37%.
  • New product categories also performed well, with Spectrum-X Ethernet for AI registering double the revenue from Q1 (Apr). Meanwhile, software is projected to approach a $2.0 bln annual run rate this year, supported largely by NVIDIA AI Enterprise.
• Given the export restrictions on chips going to China, concerns have lingered over NVDA's ability to maintain a competitive presence in the region. Management noted that as a percentage of total Data Center revs, sales to China remained below levels before the export curbs. However, revenue in the region did grow sequentially in the quarter and made a significant contribution to overall Data Center revs.
• NVDA also squashed rumors of delays surrounding its upcoming successor to Hopper, with the production of Blackwell scheduled to begin in Q4 (Jan) and continue through FY26. In Q4, the company anticipates shipping several billion dollars in Blackwell revenue as demand remains well above supply, which NVDA projects will trickle into next year. At the same time, NVDA expects Hopper shipments to increase during 2H25, reflecting a complementary role to Blackwell.

NVDA's Q2 results continued to showcase the outsized demand for AI. Many prominent tech firms, from Microsoft (MSFT) to Meta Platforms (META), are pouring billions of dollars into their AI infrastructure, leaning on NVDA's chips. While return on investment is becoming more of a talking point given how much is being spent on AI, NVDA mentioned that its customers are noticing returns immediately. ROI could remain a concern over the near term. However, over the long run, unless AI fails to produce meaningful gains on companies' bottom lines, NVDA's leadership position in AI provides attractive upside potential.