Nvidia Q2 FY26: Record sales, steady outlook, China still excluded

Analysis, Stock Investing |

Written by Haider Saleem
Journalist and Political Analyst | LinkedIn / X

Nvidia posted another strong quarter – lets take a look. 

Halal status: Nvidia (NVDA) currently screens halal.

The results

For the three months to July 27, 2025:

  • Total revenue: $46.7bn – up 56% from a year earlier. 
  • Data-centre revenue (which power AI training and usage in cloud servers): $41.1bn.
  • Net income: was $26.4bn. 
  • Profitability: Non-GAAP gross margin 72.7%; GAAP gross margin 72.4%.
    Gross margin is what’s left after paying the direct cost to make and deliver products, expressed as a percentage of sales.

Nvidia also confirmed three China-related details for the quarter:

1.  No H20 sales to China-based customers,
2.  A $180m release of a previous H20 inventory reserve, and;
3.  About $650m of H20 sales to a customer outside China.

The board expanded the share-buyback program by $60bn and said Nvidia returned $24.3bn to shareholders in the first half of FY26 through repurchases and dividends. Buybacks reduce the number of shares, which can lift earnings per share if profits hold up.

After the release, the share price fell about 3% in after-hours trading because some investors expected even stronger data-centre numbers.

Guidance and why it matters

Management guided next-quarter (Q3 FY26) revenue to about $54bn (±2%). 

This forecast does not include any H20 shipments to China. 

Investors compare this guidance not only to public analyst averages but also to higher internal targets on the “buyside.” When a company meets, rather than beats, those higher targets, the share price can slip even after a headline “beat.”

The China swing factor

China remains the main source of uncertainty.

Nvidia said it had no H20 revenue from China in Q2 and excluded China H20 from Q3 guidance while it waits for the US to codify a 15% revenue-share arrangement tied to licensed H20 exports. The company noted that a select number of Chinese customers have recently received licences.

If approvals move ahead, management indicated $2–5bn of H20 shipments to China could occur in the current quarter, but timing is unclear. Chinese authorities have also raised security concerns about foreign AI chips, which could slow adoption.

The Takeaway here is that policy, not demand, is holding back China sales today. Until licences and rules are clear, Nvidia will not count those sales in its official forecast.

Why data centres and “hyperscalers” matter

Most of Nvidia’s growth comes from AI chips used in data centres. These chips do two things:

  • Training – teaching AI models.
  • Inference – running those models to answer questions or create content.

Demand is being driven by a small group of very large cloud platforms often called hyperscalers. Media reports of management commentary say four big platforms have roughly doubled AI-related capital spending to about $600bn per year. That supports near-term demand, but it also means Nvidia relies heavily on a handful of buyers and their budgets.

Market reaction

Despite record numbers, the stock fell ~3% after hours, with coverage pointing to a small data-centre shortfall versus some expectations and guidance that met, rather than exceeded, ambitious buyside hopes. Nvidia’s market value sits near $4.4tn.

A simple look at valuation

Two quick lenses help frame scale and expectations:

  • Forward P/E (next-12-months): around ~40x on common data providers. Forward P/E uses forecast earnings. Exact prints vary by source and time of day.
  • Free-cash-flow (FCF) yield: recent sources put trailing FCF around $60–72bn. Compared with a market value of ~$4.4tn, that implies an ~1.4–1.6% FCF yield. FCF yield is free cash flow divided by market value; lower yields imply a higher valuation, all else equal.

What this quarter signals

  1. The core engine is intact. Data-centre demand remains the driver, keeping revenue and margins high
  2. The outlook is solid but cautious on China. The $54bn guide is large in absolute terms and intentionally excludes China H20. Licences could add upside, but policy timing is uncertain.
  3. A few buyers matter a lot. Hyperscaler budgets are elevated, which helps near-term demand, but any slowdown or shift to in-house chips could cool growth.

Sources

  • Nvidia press release and IR: official Q2 FY26 results
  • Financial Times
  • BBC New
  • The Times
  • Valuation references – Yahoo Finance

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