Nvidia (NVDA) reported its earnings for the second quarter (Q2) of fiscal year (FY) 2027 on Aug. 26, and the results are impressive.
In fact, they are so impressive that the company finally broke out of what had started to look like a pattern of the stock dipping the day after earnings.
Earnings for the previous four quarters were very strong, but the stock dipped nevertheless.
This time is different. The stock is soaring 8.26%, trading at $226.97 at the time of writing, Thursday afternoon, Aug. 27.
In their forecast ahead of earnings, Morgan Stanley analysts said Nvidia would have to announce something material for the stock not to dip after earnings, and that a typical beat-and-raise would not be enough.
Indeed, Nvidia’s earnings beat is much more than a typical beat-and-raise.
In a research note shared with me, Stifel analyst Ruben Roy updated his bullish opinion on Nvidia stock and explained why these earnings are such a smasher.
Let’s first take a look at the earnings report.
Key facts from Nvidia’s Q2 FY 2027 earnings report
Nvidia reported revenue of $96.2 billion, with an incredible year-over-year growth of 106%, beating LSEG’s consensus estimates of $92.165 billion.
It also beat earnings per share estimates, reporting diluted non-GAAP EPS of $2.22, versus a consensus of $2.10.
This revenue growth comes with a caveat clearly stated in Form 10-Q: “Our revenue is concentrated among a limited number of direct and indirect customers, and this trend may continue.”
The form gives details on direct customers: In Q2, one direct customer accounted for 16% of total revenue, primarily attributable to the compute and networking segment.
Nvidia notes that, for the first half of fiscal year 2027, three direct customers accounted for 16%, 15%, and 13% of total revenue, all of which were primarily attributable to the compute and networking segment.
The company increased its gross margin to 75% in Q2, up from 74.9% in the previous quarter.
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Nvidia’s outlook for Q3 of FY 2027:
- Revenue expected at $108.0 billion ± 2%
- GAAP and non-GAAP gross margins of 74.0% ± 50 basis points
- Not assuming any Data Center compute revenue from China in outlook
Nvidia CFO Colette Kress added more details about the outlook during the earnings call.
“We expect to grow revenue by approximately 70% in fiscal 2028. This is a supply-constrained outlook. Q2 data center revenue increased 18% quarter-over-quarter to $89 billion, with strong contributions from both sub-segments, hyperscale and ACIE, which includes our neocloud, industrial, and enterprise customers.”
Kress also announced an expanded partnership with AWS.
“Today, we are delighted to announce an expansion of our partnership with AWS. Building on its already vast installed base of NVIDIA Compute, AWS is deploying an additional 2 million GPUs starting this quarter through the second quarter of fiscal 2029, along with Vera CPUs, some integrated with Rubin, others standalone.”
Related: History of Nvidia: Company timeline and facts
The guidance for FY28 is incredible, given the “supply-constrained” outlook. For this pace of growth to continue, it looks like Nvidia needs to be almost immune to market share loss from custom silicon, such as application-specific integrated circuits (ASICs), as well as from AMD GPUs. Amazon’s AWS has its ASICs in the form of Trainium. Google has its TPUs.
Luckily, Nvidia confirmed an expansion of its AWS partnership, signaling that despite having its own chips, Amazon still loves Nvidia GPUs.
Stifel raises Nvidia stock price target following Q2 earnings smasher
Roy has one of the best analyst track records out there. His TipRanks profile shows he ranks 19 out of 12,495 Wall Street analysts, with a 67% success rate and an average return of 51.60%.
He said that while Nvidia beat the consensus estimates for revenue and EPS, what is more important is that management issued its first longer-term, full-year outlook in company history.
Roy reiterated a buy rating for Nvidia stock and raised the price target to $315 from $282, based on a 20x multiple. He said he believes the multiple could prove conservative in the long term.
The analyst noted that Vera Rubin is in full production and is expected to account for about 20% of Data Center revenue in Q3.
For him, the key customer disclosure was an expanded partnership with AWS.
He believes that Nvidia “remains the primary beneficiary of the shift from general-purpose to accelerated compute.” He added that the company’s positioning is evolving and is not yet reflected in the shares.
On Aug. 26, Reuters reported, citing sources at The Information, that Nvidia has agreed to buy Hugging Face for $12.9 billion.
Roy said that if the rumored deal is confirmed, an acquisition of Hugging Face would be a natural extension of Nvidia’s Nemotron strategy.
Stifel noted downside risks for Nvidia:
- A slowdown in AI build-out after several quarters of significant investment
- Lower-than-expected demand from Chinese customers
- General macro-related events that could impact future revenue growth
What do other analysts think, and how does Stifel’s opinion compare?
According to MarketBeat, 50 of the 54 analysts covering Nvidia stock rate it a buy. Four give a hold rating. The average price target is $321.46.
