Crowd-pleasing growth isn't new for Nvidia (NVDA 0.68%). But the AI and graphics chip company's late-August update still managed to turn heads. Revenue rose sharply year over year, and the data center engine kept humming. Management also issued bullish guidance for the current quarter.
Sure, shares are down since the report. But remember: The growth stock is still up 28% year to date and is up more than 240% since the beginning of last year. With a run like this in a rearview mirror, Nvidia needs to deliver impressive numbers -- and it did.
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Recent results were strong and cash-rich
Nvidia's momentum in AI infrastructure continued. Fiscal second-quarter revenue was $46.7 billion, up 56% year over year and 6% sequentially. Data center revenue hit $41.1 billion, up 56% year over year and 5% sequentially. Profitability remains best-in-class. Non-GAAP gross margin was 72.7%.
Under the hood, trends were "mixed" but healthy. I put "mixed" in quotes because investors are so used to impressive results from Nvidia that they often judge the company's growth on sequential trends instead of year-over-year trends. On this front, there was one area where the trend wasn't positive sequentially. Yes, Blackwell data center revenue grew 17% sequentially as the new platform ramps. But compute revenue dipped 1% sequentially because of a $4 billion reduction in H20 sales (more on this later). Meanwhile, networking jumped 46% as NVLink fabrics, InfiniBand, and Ethernet AI buildouts accelerated. That mix shift matters. It shows customers aren't just buying GPUs -- they're building complete AI systems.
Cash generation remains a major part of the story. Free cash flow was $13.5 billion in the quarter and $39.6 billion for the first half of fiscal 2026. Cash, cash equivalents, and marketable securities ended Q2 at $56.8 billion. With this firepower, Nvidia returned $10.0 billion in Q2 through repurchases and dividends (primarily repurchases) and authorized an additional $60 billion for buybacks. Those are elite numbers for any large cap, and they give management flexibility to invest and to return capital.
Guidance and risks set the near-term tone
The near-term outlook reinforces the growth narrative. Management guided Q3 FY26 revenue to about $54 billion, plus or minus 2%. It also expects non-GAAP gross margin of roughly 73.5% and continues to see exit-year margins in the mid-70% range. Impressively, this guidance assumes zero H20 shipments to China. That last detail is key: There were no H20 sales to China in Q2, and management's Q3 outlook again excludes them.
This creates a clean base case -- growth without a China lift. If export restrictions ease or product roadmaps adapt, upside could emerge. If they don't, the business still expects to grow through global demand for accelerated computing, the Blackwell ramp-up, and networking attached to larger AI clusters.
But things get a little less upbeat when we start talking about valuation. The stock's current price-to-earnings multiple of 49 bakes in years of exceptional execution and continued growth, all from a base of extraordinary profit margins and a huge revenue base. Driving the point home about Nvidia's overly rich valuation, consider that its market cap of about $4.2 trillion as of this writing gives the company a free cash flow yield of only about 2%. Given AI's potential, living up to this valuation is certainly a possible outcome. But the valuation leaves less room for disappointments in supply, competitive responses from rivals, potential moves from its customers to de-risk their dependence on Nvidia, or a pause in AI spending.
NASDAQ: NVDA
Key Data Points
So, should you buy the stock now?
Nvidia's quarter checked the right boxes: rapid top-line growth, elite margins, massive free cash flow, and confident guidance. In addition, the balance sheet and repurchase firepower add support on pullbacks. But the risks arguably demand a lower valuation before investors should consider pulling the trigger. The risks are significant, including ongoing China restrictions, potential lumpiness as product cycles and customer mix shift, and a valuation that demands continued outperformance.
If you already own the stock with a long-term thesis, this report is good news and may help justify continuing holding shares. For new money, however, I'd scale in rather than chase -- nibbling on volatility while letting the fundamentals and guidance do the talking over time.
