NVIDIA Corporation (NASDAQ:NVDA) demonstrated in its fiscal second quarter that near-term growth no longer depends on a material contribution from China Data Center compute revenue, guiding for $108 billion in fiscal third-quarter sales while explicitly excluding such shipments from its outlook.

The Santa Clara-based chipmaker generated $96.2 billion of quarterly revenue, representing an 18% sequential increase and a 106% jump from the year-ago period. Data Center revenue reached $89.0 billion, up 117% year over year as demand for AI infrastructure remained robust across customer segments. Both GAAP and company-defined non-GAAP gross margins came in at 75.0%.

Market Context

The guidance implies another $11.8 billion of sequential growth at the midpoint, or roughly 12%, after revenue had already doubled from the prior-year period. NVIDIA shares initially slipped following the report despite the beats across key metrics, suggesting investors are focused on margin trajectory and competitive dynamics rather than absolute growth figures.

The company had also excluded China Data Center compute revenue from its $91.0 billion second-quarter outlook, yet actual revenue exceeded that midpoint by $5.2 billion, underscoring how minimal those sales currently represent to the overall business.

Analysis

The strongest support for the $108 billion outlook lies in the diversification and growth across NVIDIA's Data Center customer categories. Hyperscale revenue reached $48.7 billion, up 102% from a year earlier and 13% sequentially, as major cloud providers continued expanding AI compute capacity.

Revenue from AI clouds, industrial and enterprise customers, or ACIE, increased 138% year over year and 25% sequentially to $40.3 billion. The category includes hyperscalers using AI clouds, AI-native companies, enterprises, and sovereign customers. ACIE now represents roughly 45% of Data Center revenue, signaling broader end-demand adoption beyond the largest cloud players.

Shipments of older Hopper Data Center products to China accounted for less than 1% of Data Center revenue during the quarter, explaining why management feels comfortable excluding such sales from forward guidance without materially impacting its growth trajectory. The Vera Rubin platform is also ramping into full production, supporting another infrastructure-upgrade cycle that could sustain growth beyond current periods.

On the margin front, however, investors should note headwinds emerging. Management guided both GAAP and company-defined non-GAAP gross margins down to 74.0%, plus or minus 50 basis points, for the third quarter. During the earnings call, NVIDIA said rising memory costs could push gross margin to 71% to 72% in the fourth quarter before settling at 72% to 73% in fiscal 2028. Planned price increases may offset part of that pressure, but they will test how much of the higher component cost customers will absorb.

Key Numbers

- Fiscal Q2 revenue: $96.2 billion (up 106% year over year)

- Data Center revenue: $89.0 billion (up 117% year over year)

- GAAP and non-GAAP gross margins: 75.0% for fiscal Q2

- Q3 revenue guidance: $108.0 billion, plus or minus 2%, excluding China Data Center compute sales

- Hyperscale revenue: $48.7 billion (up 102% YoY, up 13% sequentially)

- ACIE revenue: $40.3 billion (up 138% YoY, up 25% sequentially)

- China Hopper shipments: less than 1% of Data Center revenue

What to Watch

Watch for memory cost trends and pricing decisions in the coming quarters as investors gauge how much margin compression NVIDIA can offset through price increases. The Q4 gross margin guidance range of 71%-72% represents a meaningful compression from current levels, and analyst questions around customer absorption will be critical. The Vera Rubin production ramp and its contribution to fiscal 2026 results will also be key metrics for institutional investors evaluating the next leg of infrastructure spending. Any acceleration in sovereign AI deployments could provide additional upside to the $108 billion guidance midpoint.

Investors should monitor ACIE's growth trajectory relative to hyperscale, as broader enterprise adoption would reduce concentration risk with major cloud providers.