NVIDIA Beats Earnings, Forecasts 70% Revenue Growth for FY2028, Shares Up 5% After Hours

Artificial intelligence (AI) chip leader NVIDIA (NVDA-US) released its financial results for the second quarter of fiscal year 2027 (ended July 26) after market close on Wednesday (26th), delivering strong performance and issuing revenue guidance above market expectations. The company's optimistic forecast sent its stock price up 5% in after-hours trading.

NVIDIA sits at the core of the AI industry and has grown rapidly amid the AI boom. Its chips are used to build and serve the most advanced AI models, and the company has expanded financial support through guarantees and other arrangements to help finance and construct new AI data centers.

In the earnings press release, CEO Jensen Huang emphasized the dramatic shift in the AI industry landscape. He stated that AI has "reached an inflection point," noting that the number of companies requiring large GPU clusters has significantly increased.

"This time last year, only one lab was driving the entire build-out. Now, we are in a golden age of next-generation AI labs and startups, with multiple cutting-edge labs scaling simultaneously, open-model ecosystems flourishing, and physical AI coming online—strong momentum continues across the U.S. and globally," Huang said.

Nearly four years after OpenAI launched ChatGPT, NVIDIA continues to show remarkable growth. The latest quarter's revenue more than doubled from $46.7 billion a year ago.

Chief Financial Officer Colette Kress said during the analyst call that NVIDIA expects 70% revenue growth for fiscal year 2028, surpassing the analysts' expectation of 44%. Kress noted that "customer forecasts indicate our growth will double next year," but added that the company's guidance already reflects supply constraints.

Q2 Financial Highlights vs. LSEG Estimates

Revenue: $96.22 billion vs. $92.17 billion

Adjusted EPS: $2.22 vs. $2.10

Net profit for Q2 rose more than double from $24.76 billion, or $1.87 per share, a year ago, to $53.95 billion, or $2.22 per share.

However, after three years of historic gains, investor enthusiasm for NVIDIA stock has cooled somewhat this year. As of Wednesday’s closing, the stock was up 13% year-to-date, slightly outperforming the Nasdaq index. While the company's business remains strong, competition from Advanced Micro Devices (AMD), Google, and others is intensifying. Additionally, global memory shortages show no signs of easing, and NVIDIA faces rising memory costs.

Outlook Exceeds Market Expectations

NVIDIA said it expects revenue for the current quarter (Q3) to reach $108 billion, plus or minus 2%. Analysts had previously expected $104.2 billion.

NVIDIA noted that this outlook does not include data center sales to China.

Data Center Revenue

NVIDIA reported data center revenue of $89 billion, exceeding StreetAccount's estimate of $86.33 billion, representing a 117% year-over-year increase.

Currently, 92% of NVIDIA's revenue comes from its data center segment, which includes its market-leading AI chips.

NVIDIA's total revenue for Q2 grew 106% year-over-year.

While NVIDIA still relies on a few large web companies—so-called hyperscalers—for a significant portion of its revenue, other business segments are gradually accelerating.

NVIDIA's AI Cloud, Industrial, and Enterprise (ACIE) customers contributed $40.3 billion in revenue in Q2, a 138% year-over-year increase. Revenue from hyperscalers more than doubled to $48.7 billion.

Gross Margin Holds at 75%, Expected to Bottom in Q4

NVIDIA's gross margin remained at 75% for the second consecutive quarter—an extraordinary level for a hardware company—but faces pressure as component prices for memory and wafers rise.

NVIDIA said its gross margin will decline to 74% in Q3.

The company expects margins to continue declining and bottom between 71% and 72% in the fourth quarter of fiscal year 2027, partly due to rising memory prices.

CFO Kress said, "We wanted to be direct about this rather than let it remain an open question. Today’s memory supply shortage is largely driven by the AI infrastructure build-out itself."

Increased Investment Gains

NVIDIA's Q2 net profit included $7.8 billion in equity investment gains, compared to $15.9 billion in the prior quarter.

The chipmaker has made significant investments in companies including Intel and SpaceX.

China Sales Remain Minimal

Late last year, NVIDIA received U.S. government approval to sell certain older chips to China, but sales progress in China has been slow, and it remains unclear to what extent the Chinese government has approved the import of these chips.

CFO Kress said in written comments that shipments of these chips account for less than 1% of the company’s data center revenue.

Supply Procurement Commitments More Than Double

NVIDIA said its supply procurement commitments for Q2 increased more than double from $119 billion in the prior quarter to $279 billion, "primarily related to memory procurement."

The company said, "We continue to make strategic commitments across supply, infrastructure, and partner ecosystems to capture future large-scale growth opportunities."

$26 Billion in Share Buybacks

NVIDIA said it spent $26 billion on share buybacks and dividends in Q2. In May, the company informed investors it had authorized an additional $80 billion in share repurchases. It also plans to pay a dividend of $0.25 per share.

In recent years, as revenue and free cash flow have expanded, NVIDIA has gradually increased the scale of capital returns to shareholders.