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Nvidia (NVDA) has once again outpaced expectations with its latest Q2 earnings report, delivering record revenue of $30 billion. This impressive revenue number represents a 122% year-over-year increase and a 15% gain sequentially, surpassing Wall Street’s projections.
The company also beat analysts’ expectations on earnings per share (EPS), reporting adjusted EPS of $0.68 versus the consensus estimate of $0.65.
Looking ahead, the momentum in Nvidia’s business will likely sustain. The company issued a robust revenue forecast for the upcoming quarter, with a midpoint projection of $32.5 billion, which exceeded the Street’s expectation of $31.7 billion.
However, Nvidia’s margins raised some eyebrows, dragging its stock lower. Adjusted gross margins for Q2 came in at 75.7%, a decline from the previous quarter due to a higher mix of new data center products and inventory provisions tied to lower-yielding Blackwell material. The outlook for Q3 suggests that margin pressures may persist, with adjusted gross margins expected between 74.4% and 75% (plus or minus 50 basis points).
While Nvidia’s top-line growth remains robust, margin compression may be a factor to watch as the company navigates the change in its product mix and inventory challenges moving forward. Against this background, let’s explore factors to understand whether investors should buy the dip in Nvidia stock after earnings.
Data Center Business Fuels Nvidia’s Growth
Nvidia’s rapid expansion is primarily driven by the exceptional performance of its Data Center business. In Q2, this segment delivered $26.3 billion in revenue, representing a 16% sequential increase and a remarkable 154% growth year-over-year. To put this into perspective, just two years ago, Nvidia's data center revenue was only $3.8 billion in the same quarter.
This growth has been fueled by Nvidia’s compute and networking platforms. In Q2 FY2025, compute revenue grew more than 2.5 times compared to the previous year, while networking revenue more than doubled. Cloud service providers (CSPs) now account for around 45% of Nvidia's data center revenue, with enterprise and consumer internet companies making up more than 50%.
Artificial intelligence (AI) has been the key catalyst behind Nvidia's Data Center business. AI inference contributed over 40% of data center revenue in the last four quarters, as companies across industries continue to leverage Nvidia’s platform. Demand for Nvidia’s AI technology is booming across sectors like automotive, healthcare, and robotics, helping to sustain its growth trajectory.
Nvidia’s Path to Record Revenues
Looking ahead, Nvidia is positioned to achieve record revenues driven by the strength of its Data Center business, alongside recoveries in its Gaming and Automotive segments. The demand for its next-generation Blackwell chips, alongside its existing Hopper architecture, continues to rise.
Nvidia's recently launched H200 platform is already gaining traction among CSPs and enterprises, setting the stage for new revenue streams. Furthermore, the upcoming Blackwell platform is expected to ramp up in Q4, with Nvidia projecting several billion dollars in revenue by fiscal year-end. The company’s Spectrum-X Ethernet platform is also poised for growth, with expectations of it becoming a billion-dollar product line in the near future.
The automotive sector is another bright spot for Nvidia. Most automakers are developing autonomous vehicle (AV) technology using Nvidia’s platforms. As these next-generation autonomous vehicles require more computing power, Nvidia expects its automotive business to generate billions in revenue over the coming years.
Nvidia’s data center dominance, coupled with demand from AI and emerging markets, positions the company for solid growth that could support its stock price moving forward.
Margin Pressures: A Temporary Challenge
Nvidia’s margins came under pressure as the data center product mix continued to shift to new products, particularly the lower-margin Blackwell line. However, as production costs for Blackwell products mature, this margin compression is expected to ease, leading to more stable gross margins.
Going forward, higher revenues and margin stabilization could significantly boost shareholder returns. In Q2, the company returned $7.4 billion to shareholders through share repurchases and dividends. The board has also approved a massive $50 billion share repurchase authorization, supplementing the $7.5 billion still available from prior authorizations.
Bottom Line: Should You Invest in NVDA Stock Now?
Nvidia's strong foothold in AI, innovative products, expanding gaming ecosystem, and rising demand for AI cockpit solutions suggest solid growth potential. Analysts are equally optimistic, with 34 out of 39 rating Nvidia as a “Strong Buy.”
Analysts’ average price target for NVDA stock is $144.75, indicating a potential upside of about 31% from current levels. For investors seeking opportunities in AI, Nvidia continues to be an appealing choice despite some near-term margin challenges.
On the date of publication, Amit Singh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
