Nvidia Stock Soars After Q2 Earnings: Is NVDA Still a Buy?

Nvidia NVDA) stock has surged more than 7% on Thursday after the AI chip giant delivered another blockbuster quarterly report yesterday evening and, more importantly, gave Wall Street considerably more confidence that its extraordinary growth can extend well into next year.

Ahead of the report, several key questions surrounded Nvidia's Q2 results: whether its Vera Rubin platform was ramping on schedule, if gross margins could remain near 75%, and how much of the massive AI infrastructure buildout Nvidia would ultimately have to finance itself.

The answers were mostly encouraging, although investors still have a few risks to weigh before chasing today's rally.

Nvidia Crushes Q2 Expectations and Raises the Growth Bar

Nvidia posted Q2 revenue for its current fiscal 2027 of $96.22 billion, soaring 106% from $46.74 billion in the prior year quarter and comfortably topping estimates of $91.79 billion.

Adjusted net income came in at $53.95 billion, or earnings of $2.22 per share, up 120% year over year and beating Q2 EPS expectations of $2.09 by 6%. Data Center sales were the standout once again, jumping 117% to a record $89 billion.

Even more impressive was Nvidia’s outlook. The chip giant expects Q3 revenue of $108 billion, plus or minus 2%, with no Data Center compute sales from China included in that forecast.

Management also offered a preliminary expectation for roughly 70% revenue growth in fiscal 2028, despite anticipating that supply will remain constrained through the end of that reporting year.

That longer-term outlook arguably provided the biggest catalyst for today's rally, as Wall Street had been bracing for a much steeper slowdown in Nvidia's growth rate.

To that point, its Q3 revenue forecast came in above analyst consensus estimates of $102 billion (Current Qtr below), while the FY28 preliminary revenue forecast is well ahead of Zacks current projections of $553.24 billion or 42% growth.  

Vera Rubin Is Becoming Nvidia's Next Growth Engine

The Vera Rubin ramp also provided the confirmation investors were looking for.

Production shipments began earlier this month, and Nvidia says it has already received purchase orders from every major hyperscaler, AI cloud provider, and system original equipment manufacturer (OEM).

Management expects Vera Rubin to account for roughly 20% of Data Center revenue in Q3 and believes it could become the fastest product ramp in Nvidia's history.

This suggests Nvidia is transitioning from its Blackwell platform to its next-generation AI architecture without the growth pause investors might normally expect during a major product cycle.

Gross Margins Are the Biggest Near-Term Blemish

Profitability remains exceptional, but this was one area where the report was less reassuring.

Nvidia maintained a 75% gross margin in Q2, but management expects it to slip to roughly 74% in Q3 and bottom between 71% and 72% in Q4 as surging memory prices increase system costs. Nvidia expects margins to settle around 72%-73% in FY28, with planned price increases beginning to provide some relief early next year.

Considering Nvidia's staggering revenue growth, these margins remain enviable. Still, investors should no longer assume that mid-70% gross margins are guaranteed as increasingly complex AI systems push component costs higher.

Over the trailing twelve months (TTM), Nvidia’s 74% gross margin has impressively outpaced the S&P 500’s 53% average and has topped its Zacks Semiconductor-General Industry average of 72%

Is Nvidia Shifting the AI Financing Burden?

Nvidia's balance sheet remains formidable. The company finished Q2 with roughly $99 billion in cash and marketable debt and equity securities, while generating $24.1 billion in operating cash flow during the quarter.

However, Nvidia is deploying significant amounts of capital across its ecosystem. Non-marketable securities rose to more than $51 billion from $22 billion at the beginning of the fiscal year, while the company purchased $15.8 billion of equity securities during Q2 alone. Its supply and capacity commitments also surged from $119 billion last quarter to roughly $279 billion as Nvidia locks down memory and manufacturing capacity for future demand.

That said, Nvidia appears to be finding ways to bring much deeper pockets into the AI buildout. Its partnerships with major investment firms Apollo Global Management APO), BlackRock BLK), Blackstone BX), Brookfield Asset Management BAM), Goldman Sachs GS) and KKR KKR) are intended to mobilize more than $500 billion of third-party capital for AI infrastructure, creating independent pools of financing for Nvidia customers.

That could gradually shift more of the burden away from Nvidia's own balance sheet, although investors should continue monitoring its guarantees, strategic investments, and other commitments as the AI spending boom grows larger.

Monitoring Nvidia’s Valuation

Despite today's rally, Nvidia stock is still trading at just under 24X forward earnings following its impressive Q2 EPS beat.

Furthermore, upward earnings estimate revisions after such a strong report and outlook could quickly make Nvidia’s valuation even more appealing. Notably, NVDA is trading near its decade-low forward P/E of 20X and at a nearly 50% discount to its 10-year median of 45X.

And if you're wondering, NVDA’s return over the last decade is near a staggering 14,500% 

Bottom Line: Should Investors Chase the NVDA Rally?

There is considerably more to like about Nvidia following Q2 earnings. The company crushed expectations, issued strong Q3 guidance, provided surprisingly bullish FY28 commentary, and offered concrete evidence that Vera Rubin is already becoming its next major revenue engine.

Margin pressure and Nvidia's enormous financial commitments prevent the story from being completely risk-free, and investors don't necessarily have to chase a 7% one-day spike. Still, the rally appears fundamentally supported rather than simply driven by post-earnings enthusiasm.

Most importantly, NVDA now sports a Zacks Rank #2 (Buy), reflecting a favorable earnings-estimate revision outlook.

For long-term investors, Nvidia's valuation still looks surprisingly reasonable relative to its growth trajectory, making pullbacks particularly attractive and today's post-earnings rally difficult to bet against.

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

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