Should You Buy NVIDIA After Solid Q2 2026 Results Without China Sales?

NVIDIA Corp. NVDA — the undisputed global leader of generative artificial intelligence (AI)-powered graphical processing units (GPUs) — reported strong second-quarter fiscal 2026 earnings results. Adjusted earnings per share came in at $1.05, surpassing the Zacks Consensus Estimate of $1.00 and the year-ago figure of $0.68. Revenues came in at $46.74 billion, outpacing the Zacks Consensus Estimate of $46.14 billion. 

Year over year, second-quarter revenue increased 55.6%, marking the ninth consecutive quarter in which the revenue growth rate exceeded 50% from the prior year. Yet, in after-market trading, the stock price of NVDA fell 3.2%. The reason is that the Data Center segment revenues — known as the jewel in NVDA’s crown — came in slightly below expectations. 

China Sales Evaporate

Quarterly Data Center revenues were reported at $41.1 billion in the fiscal second quarter, below the consensus estimate of $41.3 billion. In the prior-year quarter, revenues of this segment were just $26.2 billion. However, sequentially, revenues declined 1%. This was solely due to no sales of its H20 chips in China. 

The Data Center Compute revenues came in at $33.84 billion as a result of losing $4 billion of sales in China in the reported quarter partially offset by $180 million of inventory release to a large client outside China. 

The Trump administration restricted the shipment of H20 chips to China in April. However, the situation changed and in July the company said, “the U.S. Government has assured NVIDIA that licenses will be granted, and it hopes to start deliveries soon.” 

In a complete turn of the scenario, the U.S. government asked NVIDIA to pay the government a 15% levy of its total sales in China. Nothing concrete has come up to exit from this impasse, and as such the Government order is likely to face legal challenges due to the US Constitution’s ban on export taxes. 

Impressive Q3 Guidance 

NVIDIA’s H20 chip sales in China are currently in jeopardy due to an impasse in the U.S. Government decision. On top of that, the decision of the Chinese authority is encouraging the use of indigenously developed AI chips instead of NVDA’s GPUs. 

As a result, NVDA did not count H20 chip sales to China while issuing its fiscal third-quarter guidance. Despite this headwind, management said that quarterly sales will reach $54 billion, +/- 2%. The current Zacks Consensus Estimate is $52.22 billion, up 48.9% year over year. 

NVDA said that the resumption of H20 sales in China could add another $2 to $5 billion in the third quarter. The Zacks Consensus Estimate for EPS is currently pegged at $1.17, up 44.4% year over year. 

Innovation, Evolution and Execution

NVIDIA reaffirmed its commitment to continued innovation, evolution and execution. After the successful execution of Hopper GPUs, NVDA’s Blackwell GPUs have already sold record-high units to cloud providers. Management said that Blackwell sales rose 17% sequentially in the fiscal second quarter.
NVIDIA is expected to unveil Blackwell Ultra — in the second half of 2025 and begin shipping Vera Rubin — in 2026. In addition, the company has decided to announce its roadmap for Rubin Next, to be introduced in 2027, and Feynman AI chips to be launched in 2028. 

NVIDIA is supported by an extremely bullish demand scenario. The company expects between $3 trillion and $4 trillion in AI infrastructure spending by the end of the decade. Four major clients of NVDA, namely, Microsoft Corp. MSFT, Alphabet Inc. GOOGL, Meta Platforms Inc. META and Amazon.com Inc. AMZN have decided to invest a massive $325 billion in 2025 as capital expenditure for AI-infrastructure development.

Visionary Diversification

NVIDIA is increasingly focusing on powering advanced driver-assistance systems, autonomous vehicles, and robotics. Apart from the robust business of data centers and gaming, the automobile industry, especially the self-driving and new energy vehicles, is turning out to be the next catalyst. 

In second-quarter fiscal 2026, automotive revenues jumped 69.4% year over year to $586 million. NVDA is expecting automotive segment revenue to cross $5 billion in fiscal 2026. Management is highly optimistic as this business could become a multitrillion-dollar opportunity in the future. 

Nvidia’s Gaming business generated $4.3 billion in sales in the last reported quarter, up 48.9% year over year. This was primarily due to the success of its own GeForce line of graphics chips and sales of the Nintendo Switch 2, which runs on NVDA’s processors. Moreover, Data Center Networking revenues were $7.3 billion, jumped 98% year over year. NVDA expressed confidence that Networking will be a very big part of its overall businesses. 

Leveraging Reasoning AI Models 

The major innovation for NVDA’s new chipsets is a qualitative shift from pure-play generative AI models to reasoning AI models. NVIDIA’s CEO Jensen Huang, said that the open-sourced reasoning AI models consume 100 times more compute than a non-reasoning AI model.

Huang added that AI chips with faster speed will be the best option for companies that opt for reasoning AI-based infrastructure to save costs and maximize returns. In this regard, NVDA’s upcoming Blackwell Ultra chips are expected to provide data centers 50 times more revenues than its Hopper systems, buoyed by their superfast AI servicing capabilities to multiple users.

Strong Upside Potential for NVDA Stock

NVIDIA has a return on equity (ROE) of 105.1% compared with the S&P 500’s ROE of 12.4% and the industry’s ROE of a mere 4%. NVDA has a forward P/E (price/earnings) of 42.4% compared with the industry’s P/E of 40.5% and the S&P 500’s P/E of 19.9%. The stock has a long-term (3-5 years) EPS growth rate of 28.2%, significantly above the S&P 500 Index’s 12.8% growth rate. 

Year to date, NVIDIA has provided a 31.6% return. Yet, the short-term average price target of brokerage firms for the stock represents an increase of 9.7% from the last closing price of $181.60. The brokerage target price is currently in the range of $250-$100. This indicates a maximum upside of 37.7% and a downside of 44.9%. 

Investment Thesis for NVDA Shares

NVIDIA currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

NVIDIA represents a rare opportunity to invest in a company with proven execution and substantial unrealized potential in the AI revolution. Astonishing growth potential of the global AI infrastructure market and NVDA’s strong guidance and business visibility despite revenue loss in China are noteworthy. As a result, the average target price of brokerage firms is expected to witness solid near-term upside.

At this stage, it will be prudent to buy NVDA on every dip. Hold this stock for the long term as the company’s strong execution of the last several quarters and robust future projections should generate more value. 

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This article originally published on Zacks Investment Research (zacks.com).

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