Nvidia Stock Down 1.2%. Why Growth May Slow And Why Not To Buy $NVDA
News Summary
Nvidia's Q2 2026 results generally beat expectations, but data center revenue fell short, primarily due to the lack of sales in the Chinese market. The company's revenue and stock price growth rates are decelerating, with future explosive growth challenged by market saturation and elusive AI investment returns. For the quarter, Nvidia reported total revenue of $46.74 billion, up 56% year-over-year; data center revenue was $41.1 billion, also up 56%, but $200 million short of analyst expectations. Adjusted earnings per share rose 73% to $1.05. The company issued Q3 revenue guidance of approximately $54 billion, which is above analyst forecasts, but assumes no sales in China. Due to the inability to sell H20 chips to China, Nvidia took $4.5 billion in writedowns. These chips would have added $8 billion in Q2 revenue and could potentially generate $2 billion to $5 billion in the current quarter. Notably, after CEO Jensen Huang met with US President Donald Trump, Nvidia hinted it might get licenses to ship H20 chips to China, with the federal government securing a 15% cut of AI-chip revenue earned in China. The article highlights that AI investment returns have been largely elusive, with 95% of companies surveyed reporting no return on their AI investment, which could slow data center demand. Both Nvidia's stock and revenue growth have been decelerating, suggesting its best days of growth may be in the past unless new, much larger markets are found.
Background
Nvidia is a global leader in designing Graphics Processing Units (GPUs), with its chips dominating the Artificial Intelligence (AI) and data center sectors. GPUs have become the core enabler for AI computing in recent years, driving unprecedented demand for Nvidia's products. However, the U.S. government, citing national security concerns, has imposed stringent export controls on advanced AI chips to China. These restrictions have directly impacted Nvidia's ability to sell its high-end GPUs in the critical Chinese market, forcing the company to develop less powerful, compliant versions (like H20) to navigate the regulations, though sales remain subject to policy uncertainties. The increasing technological and economic rivalry between the U.S. and China is a key backdrop, with AI chip export controls serving as a focal point of this great power competition. Nvidia's commercial prospects in China are thus intricately tied to geopolitical dynamics and the policy decisions of the U.S. administration.
In-Depth AI Insights
What is the true strategic significance of President Trump's "15% cut" deal for Nvidia's China sales, beyond a simple revenue share? - This likely represents a novel form of "state capitalism" or "revenue-sharing diplomacy." By directly taking a 15% cut from Nvidia's AI chip revenue in China, the Trump administration not only generates an income stream for the US federal treasury but, on a deeper level, establishes a "tax base" for the U.S. in its tech competition with China. This implies that even if US companies sell restricted products in the Chinese market, the US government can indirectly benefit from these sales, alleviating domestic concerns about "China benefiting from US technology" while potentially laying groundwork for future, broader "tech sovereignty taxes." - This model could also be interpreted as a "de facto tax" on China's technological development. By permitting the export of certain chips while demanding a share of the profits, the US government seeks to maximize its own economic and strategic interests while simultaneously modulating the pace of China's AI advancements. It balances the market access needs of US tech companies like Nvidia against national security priorities, exerting influence through economic means. Given the currently low AI investment ROI (95% of companies see no return), what does this imply for Nvidia's long-term data center demand? - This signals that the AI boom may be entering a phase of "rationalization" rather than sustained exponential growth. If enterprises cannot realize tangible financial returns from their AI investments, the current immense capital expenditure on AI infrastructure, including Nvidia's GPUs, will become unsustainable. Companies are likely to re-evaluate their AI strategies, reduce indiscriminate spending, and pivot towards more cost-effective, specific-use-case AI solutions. - For Nvidia, this means market demand will shift from a purely "arms race" mentality to a rigorous scrutiny of "value creation." In the future, Nvidia may need to work more closely with customers to demonstrate that GPU investments yield clear business value and ROI, rather than merely providing computing power. This will pressure Nvidia to evolve from a pure hardware provider to a more comprehensive AI solutions enabler, or face significant deceleration in its data center growth. Is the potential for Nvidia's re-entry into the Chinese market and its associated revenue sufficient to offset slowing growth in its other global markets? - While the Chinese market holds immense potential revenue for Nvidia, its highly uncertain nature means it is more likely to remain a "political football." Even limited H20 chip sales are subject to sudden US government intervention and shifts in geopolitical relations. Therefore, relying on the Chinese market as a primary driver to offset global growth deceleration carries significant strategic risk. - Furthermore, even if the Chinese market fully reopens, Nvidia faces increasing pressure from domestic competitors who are rapidly advancing their AI chip design capabilities. In the long run, Nvidia's market share and profit margins in China may not match those in its other mature markets. Thus, expecting the Chinese market to reignite "explosive growth" is unrealistic; it's more likely to provide an important supplemental revenue stream rather than a core growth engine.