Nvidia's revenue from its key AI business fell short of forecasts. Shares fell

Nvidia shares fell 3.5% in the postmarket after the company released its quarterly results, and the ensuing conference call with the company's CEO Jensen Huang didn't reassure investors. The chipmaker beat Wall Street forecasts for revenue and earnings, but it failed to show higher-than-expected revenue from a key division that makes AI chips for data centers. Shipments of H20 chips to China, interrupted by Washington's temporary ban, never started, and the company didn't include them in its current-quarter forecast either. The prospects of exports to the Chinese market is one of the main issues that Wall Street is concerned about.

Shares of chipmaker Nvidia fell 3.5 percent in extended trading on Wednesday, Aug. 27, following the release of its report for the second quarter of fiscal 2026, which ended in July. Investors deemed insufficient revenue growth in the company's AI chip division, Bloomberg explained . Sales of that business jumped 56% from a year ago to $41.1 billion from a consensus of $41.29 billion, the agency reported.

This is the second quarter in a row when Nvidia's key division, which generates 89% of its total revenue, fails to meet expectations, notes The Wall Street Journal. However, the previous report was published before the chipmaker disclosed the scale of losses due to restrictions on sales in China, so at that time analysts have not yet had time to adjust their forecasts to account for this factor, the publication specifies.

Nvidia's total revenue increased 56% to a record $46.74 billion. Analysts polled by LSEG had predicted it would be $46.06 billion, CNBC reported. Adjusted earnings per share amounted to $1.05 against expectations of $1.01.

The gaming division brought the company 49% more than a year ago at $4.3 billion. The chipmaker said its gaming graphics cards will support running some of developer ChatGPT OpenAI's big language models directly on personal computers, CNBC noted.

Nvidia's sales forecast for the current, third quarter Bloomberg called ambiguous. The market was counting on $53.46 billion, the company announced the amount of $54 billion, but noted that allows for fluctuations of 2% in one direction or another, which could potentially be below consensus. The Agency reminds that some expectations on revenues in the third quarter reached up to $63 bln.

Lower-than-expected revenue from the division that makes AI chips for data centers is partly due to restrictions on shipments of H20 chips to China. The company reported a $4 billion shortfall in the second quarter because there were no sales in the Chinese market.

Nvidia did not include revenue from semiconductor exports to that country in its third-quarter outlook, as it did for the second quarter. In a conference call with investors and analysts after the report was released, CFO Colette Kress said there is "interest" in H20 chips in China, and Nvidia has already received an initial package of licenses from the U.S. government. She said the company could generate between $2 billion and $5 billion in the third quarter from H20 sales to Chinese customers. However, prospects for further shipments remain dim due to political and legal constraints.

In mid-August, US President Donald Trump said he would authorize the sale of AI chips to China on the condition that Nvidia and AMD would contribute 15% of those exports to the US budget. However, as Kress explained, the government has yet to publish specific regulations or solidify the details of this agreement. At the same time, Beijing has started recommending local companies to refrain from buying U.S. chips, Bloomberg reported.

In the second quarter, about half of the revenue of Nvidia's data center division came from the largest cloud providers. The company said Blackwell sales were up 17% from the first quarter, calling it a sign of "extraordinary demand". In May, Nvidia reported that sales of this product line totaled $27 billion in the first quarter, or roughly 70% of the data center division's revenue.

Nvidia CEO Jensen Huang told an analyst call that there is a "real possibility" of bringing Blackwell to the Chinese market.

The company also promised that the new generation of processors - with the Rubin architecture - will go into mass production next year, as the company had planned. "Rubin chips are already in production in fabs," Kress stated.

As many analysts predicted , Nvidia's results impacted the broader market. Shares of other AI hardware companies also fell after the report. CoreWeave fell by about 1.6%, Supermicro by 2.4% and Palantir by 1%. Under pressure were the securities of chipmakers AMD, Taiwan Semiconductor and Broadcom.

Futures on the Nasdaq Composite, dominated by technology companies, lost 0.5% at once. Futures on the S&P 500 fell 0.3% after the index closed the trading session on August 27 with a new record. Nvidia's market capitalization is about 8% of its weight. On the report of the chipmaker largely depends on the preservation of the rally in the U.S. stock market, noted the day before Barron's. According to the publication, the company's results may turn out to be "even more important than Fed chief Jerome Powell's recent reversal toward lower rates."

"Why is Nvidia so important? Because it affects not only chip makers and hyperscalers, but also the industrial sector, utilities - all the investments in building data centers, providing their power needs and the equipment involved," Jeff Marks, director of portfolio analysis at CNBC Investing Club, explained even before the company released its quarterly results.

- "In absolute terms, Nvidia's results remain outstanding (how many companies of this size show sales growth of more than 50% year-on-year?) But against extremely high expectations, the numbers look rather mediocre (if not outright disappointing), which could (...) encourage rotation to other assets," suggested Vital Knowledge's Adam Crisafulli, as quoted by Bloomberg.

- "The negative reaction of [Nvidia] stock seems rather misguided and overly harsh," David Wagner of Aptus Capital Advisors told CNBC, adding that investors should "buy them on the dip." "The company is still projected to grow more than 50 percent on quarterly revenue of $50 billion - that's outstanding even given the current valuation," he said.

- Susquehanna analyst Chris Rolland on CNBC also called the stock's initial move "excessive" and the chipmaker's results "normal."

- The market's sharp reaction has more to do with how Wall Street calculated its estimates for the company's earnings than directly with the results, Deepwater Asset Management co-founder Gene Munster told CNBC. Investors just don't want to do the math, he joked. Expectations may have been inflated because analysts had assumed a rebound in Chinese exports, explained Bloomberg Intelligence analyst Kunjan Sobhani. Munster added that he wouldn't be surprised if stocks show gains on Thursday when the market realizes that the failure to meet forecasts doesn't add to concerns about the outlook for AI.

- The absence of export chip revenue for China in the third-quarter outlook is an important point as uncertainty remains, warned chief market strategist at B. Riley Wealth Management's Art Hogan. "Will they actually get a license to supply the H20 and start selling? - The analyst wondered. - By not including anything in the third-quarter outlook, they leave themselves with more upside potential if they eventually get the license." Despite the risks, and he believes the market will "breathe a sigh of relief" on Thursday.

- Wall Street is likely to enter a "digestion" phase if a rally in Nvidia shares doesn't start soon, according to Jay Woods, chief global strategist at Freedom Capital Markets, CNBC quoted him as saying. According to him, the next stage of market growth is more likely to be driven by expectations of Fed interest rate cuts, rather than trading in AI-related stocks. Nvidia itself could face a correction in the process, Woods allowed, but it's not uncommon for its shares to do so before a new rally, he reminded. "Nvidia is still trading near all-time highs (...) This [second-quarter report] is not going to be the catalyst to break out," the strategist said.

This article was AI-translated and verified by a human editor