Nvidia Just Proved the AI Boom Isn't Slowing Down

On August 26, when Nvidia reported its Q2 earnings, one of the big questions on investors' minds was whether the spending boom for AI continues to gain altitude, or whether Big Tech's own chips would start taking meaningful demand away from Nvidia. Nvidia's report answers that question in a very big way. The stock jumped 8.7% or so the following trading day, for a gain of some $442bn or so in market value, the second biggest single-day gain of any stock in history, after Microsoft's roughly $450bn increase in the stock some month or so prior. The stock is now worth some $5.5 trillion, making it the largest company in the world.

The Numbers Behind the Jump

NVIDIA reported second quarter revenue of $96.2 billion, up 106% from last year's $46.7 billion. The company's datacenter business brought in $89.0 billion in revenue for the quarter, up 117% from last year's $41.1 billion. The gross margin for the quarter came in at 75%. But as with most companies, the real numbers to look at are the company's guidance for future quarters. For the current quarter NVIDIA is expecting $108 billion in revenue, but more importantly the company is now expecting 70% revenue growth for fiscal 2028. That number is nearly double what analysts had been expecting of 44% growth for the year.

Why This Mattered So Much

The report for the major money player Nvidia provided far more insight than a single company's report. The chip supplier is at the core of many major AI initiatives and as its results rise and fall so too does the entire market's perception of the rest of the industry. The reason the report was of so much importance was because it answered a huge question hanging over the market's head. Would the biggest money spenders continue to pump up Nvidia's AI-enabled GPU chip business or would they suddenly turn elsewhere and start designing their own? But it was the AWS agreement to deploy 2m additional Nvidia GPUs over the next two years, which could in turn extend to millions of CPUs, that confirmed that the biggest hyperscalers were not retreating from AI spend and instead locking in the supply of the industry's leading processor over the long haul.

Why This Matters Beyond Nvidia

As reported previously, Nvidia's earnings as a single company do not typically generate much interest as it does not represent a single company in the view of the AI trade. Rather it serves as the primary chip supplier to the many builds of AI that are being designed and implemented by Microsoft, Amazon, Google and scores of other companies. Thus, Nvidia's forward guidance to almost double what the AI bulls had anticipated for its revenue growth to 70% in fiscal year 2028 represents one of the clearest signals yet that hundreds of billions of dollars in AI spending are still expected by the AI focused hyperscalers and startups. Thus, a very different answer to that big question than had been anticipated by investors prior to this report.

The Bottom Line

Nvidia didn't just report a good quarter. It answered a question that had been on everyone's minds. Does AI spending have more room to run? Nvidia said yes. The market agreed, with the stock posting the second-largest single-day gain in market value in history: $442 billion in one day. The market was saying that hundreds of billions of dollars were going to be spent on AI. But how would that get translated into real revenue for the company, quarter after quarter? We'll have to wait and see on that one.