Summary of Key Highlights
NVIDIA's financial report for the second quarter of fiscal year 2027 far exceeded market expectations, with both revenue and profits doubling. The data center business has become the main driver of growth. The company has provided an optimistic outlook for future growth, anticipating a 70% increase in revenue for fiscal year 2028, and the mass production of the new Vera Rubin chip is accelerating. However, NVIDIA is facing challenges such as tight memory supply and high memory prices. In response to concerns about its "revolving financing" model, NVIDIA explains that it is a win-win solution designed to help customers overcome infrastructure barriers. The company believes its comprehensive AI platform offers a unique competitive advantage. Following the release of the report, NVIDIA's stock price surged by more than 4% after the market closed.
1. Outstanding Financial Results: The Data Center Business Takes the Lead
The most notable aspect of the report is the significant performance beyond expectations: revenue for the second quarter was $96.2 billion (a 106% year-over-year increase and a 18% quarter-over-quarter increase), with net profit at $59.7 billion (a 126% year-over-year increase) and a gross margin of 75%. All these figures surpassed analysts' forecasts. The data center business was the star performer, generating $89 billion in revenue (accounting for 92% of total revenue), a 117% year-over-year increase. Specifically, large cloud service providers (such as AWS and Google Cloud) contributed $48.7 billion (a 102% year-over-year increase), while AI cloud, industrial, and enterprise customers contributed $40.3 billion (a 138% year-over-year increase), indicating that not only large companies but also small and medium-sized enterprises and AI startups are eager to purchase NVIDIA's chips.
The edge computing business (e.g., Blackwell workstations) generated $7.2 billion, a 27% year-over-year increase, mainly due to the success of new architecture products. The Hopper 200 chip, sold to Chinese customers, accounted for less than 1% of total revenue, having a minimal impact.
2. Strong Confidence in Future Growth: Vera Rubin as the Next Big Hit
NVIDIA is providing growth forecasts a year in advance due to clear market demand:
- Short-term forecast: Revenue for the third quarter is expected to reach $108 billion (exceeding analysts' predictions), with the Vera Rubin chip accounting for 20% of data center revenue.
- Long-term outlook: Revenue is projected to grow by 70% for fiscal year 2028, with outstanding orders totaling over $2 trillion (of which $1.3 trillion came from large cloud service providers in 2027 alone).
The Vera Rubin chip is a critical factor: it has already entered mass production, and all major cloud providers have placed orders. This chip is expected to be the fastest-to-market product in NVIDIA's history, with each gigawatt of Vera Rubin deployments generating $40 billion in revenue (an increase of $15 billion compared to the previous Blackwell chip), indicating significant potential. Additionally, the CPU business is also showing progress, with revenue expected to double by fiscal year 2028, aiming to make NVIDIA one of the leading global server CPU suppliers.
3. Supply Constraints Hinder Growth: High Memory Prices
Despite surging demand, supply is struggling to keep up:
- Memory prices have risen faster than expected and are expected to remain high, with supply constraints expected to persist until at least fiscal year 2028.
- To ensure a steady supply of raw materials, NVIDIA has signed a $279 billion procurement agreement with suppliers (mainly for memory), an increase of $160 billion compared to the previous quarter.
- This situation may affect the gross margin, which could drop to 71%-72% in the fourth quarter and stabilize at 72%-73% for fiscal year 2028 (a slight decrease from the current 75%).
Jensen Huang joked about having to "decide daily which supplier to work with," highlighting the severity of the supply chain challenges.
4. New Business Model Questioned: NVIDIA Defends It as a Win-Win Strategy
NVIDIA has introduced a new approach: helping customers build AI data centers through a lease transfer and credit enhancement model. For example, if an AI company lacks the funds to purchase infrastructure, NVIDIA assists by securing land and power, then leases the data center to a third party or provides credit support. Critics argue this is a form of "revolving financing" (where NVIDIA lends money to customers to buy its own products), but NVIDIA explains that it aims to help customers overcome infrastructure barriers and expand the market, potentially generating billions in revenue in the long term. The $500 billion invested in AI laboratories represents a small portion of NVIDIA's free cash flow, with low risk. Two of these laboratories are expected to go public soon, offering potential high returns. In short, NVIDIA believes these AI companies will grow, and by supporting them now, it can benefit in the future.
5. Unperturbed by Competitors' Self-Developed Chips: NVIDIA's Comprehensive Platform
NVIDIA is unfazed by competitors developing their own AI chips:
- While some customers may develop chips for specific use cases (e.g., within their own clouds), NVIDIA offers a comprehensive AI platform that can run on all clouds and includes software and ecosystem support.
- Besides large cloud providers, there are many other customers (e.g., sovereign AI entities, new cloud providers, and enterprises) that do not want to develop their own chips, representing additional market opportunities for NVIDIA.
In summary, NVIDIA is the leader in the AI chip market, with strong demand but facing supply challenges. Its new business model, although controversial, helps the company seize more opportunities. The threat from competitors developing their own chips is currently limited.
(The entire report is presented in plain language, avoiding technical jargon and focusing on explaining key points in a way that is easy for non-financial readers to understand.)