Strong financial report can't save it! Nvidia plummets 5% after hours, inventory surges, and China ban becomes a concern

Investment Insights -

American chip giant Nvidia announced strong revenue and profit performance in its second-quarter financial report, yet failed to gain market favor, with its stock price dropping more than 5% in after-hours trading. The financial report showed that the company's revenue reached $46.7 billion, a 56% increase compared to the same period last year, and net profit surged to $26.4 billion, exceeding analysts' expectations. CFO Colette Kress stated that investments in artificial intelligence infrastructure could reach $3 to $4 trillion in the future, and the company is actively participating in this wave of technological innovation.

However, a closer look at the financial report reveals some concerns. Although the data center business is the main growth driver, the core GPU "computing" revenue decreased by 1% compared to the previous quarter, marking the first decline since the AI boom began, indicating challenges in maintaining high growth. Particularly, the H20 chip could not be shipped to China, resulting in a potential loss of $8 billion in revenue, leading the company to record a $4.5 billion write-down. Nvidia emphasized that despite restrictions in the Chinese market, demand for the new generation "Blackwell" chips from other customers is strong, with sales reaching $27 billion in May alone.

Aside from the AI business, Nvidia's gaming division saw a 49% year-on-year revenue increase, reaching $4.3 billion; although the robotics division is small, it experienced a remarkable growth rate of 69%. Additionally, the board approved a $60 billion share buyback plan, demonstrating confidence in future development.

However, the market is more concerned about the company's revenue outlook for the next quarter. Nvidia estimates third-quarter sales to be around $54 billion, which aligns with Wall Street's average expectations, but some analysts had originally anticipated it would exceed $60 billion. This conservative forecast deepens market concerns about a slowdown in AI investments, especially regarding whether growth momentum can be sustained given the restrictions in the Chinese market.

Analyst Lu Xingzhi pointed out that Nvidia's financial forecast, while slightly above market expectations, is only 1% higher, making it difficult to stimulate investors to increase their positions. More concerning is that the company's inventory has surged to $14.96 billion, with inventory months increasing by 32% compared to the previous quarter and 30% year-on-year. Although the company explained that this is to prepare for the large shipment of Blackwell chips, the market worries that this may be related to declining demand for older chips, coupled with tech giants like Google, Amazon, and Meta accelerating their own AI chip development, increasing competitive pressure on Nvidia.

Overall, despite Nvidia's impressive financial figures, the market harbors doubts about its future growth momentum. The rising inventory and uncertainties in the Chinese market have led investors to choose to take profits, resulting in a drop in after-hours stock prices. Moving forward, whether Nvidia can maintain high growth will hinge on the comprehensive shipment of Blackwell chips and the re-entry of H20 chips into the Chinese market