0001045810-25-000209
SEC filingNVIDIA's Q2 FY26 revenue surged 56% YoY to $46.7B, driven by Data Center growth, but gross margin contracted 2.7 pts to 72.4% due to product mix.
NVIDIA delivered robust financial results for the second quarter of fiscal year 2026, with revenue of $46.74 billion, up 56% year-over-year and 6% sequentially. The revenue surge was primarily fueled by Data Center compute and networking platforms for accelerated computing and AI solutions, including the ramp of Blackwell Ultra platforms. Gross margin decreased to 72.4% from 75.1% a year ago, as the product mix shifted toward full-scale datacenter systems (Blackwell) compared to Hopper HGX systems last year. Operating income rose 31% sequentially and 53% year-over-year to $28.44 billion, driven by revenue growth despite higher operating expenses. Net income increased 59% year-over-year to $26.42 billion, with diluted EPS of $1.08, up 61% from $0.67 in the prior year. The sequential gross margin improvement from 60.5% in Q1 to 72.4% was largely due to the absence of the $4.5 billion H20 charge and a $180 million inventory release. Operating expenses grew 38% year-over-year to $5.41 billion, driven by compute and infrastructure costs and higher compensation.
The Compute & Networking segment generated $41.33 billion in revenue, a 56% year-over-year increase, with operating income of $28.36 billion. Data Center compute revenue declined 1% sequentially due to a $4.0 billion reduction in H20 sales, but grew 50% year-over-year. Data Center networking revenue surged 98% year-over-year and 46% sequentially, driven by NVLink compute fabric for GB200/GB300 systems and Ethernet adoption. The Graphics segment delivered $5.41 billion in revenue, up 51% year-over-year, with strong sales of Blackwell architecture across gaming (up 49% YoY), Professional Visualization (up 32% YoY), and Automotive (up 69% YoY). Segment operating margins were 68.6% for Compute & Networking and 41.4% for Graphics.
NVIDIA did not provide explicit forward guidance in the MD&A. However, management highlighted several strategic priorities and challenges: the ramp of Blackwell Ultra platforms continues, with a one-year product cadence. The company plans to increase U.S.-based manufacturing to strengthen supply chain resiliency. Export control uncertainties persist, particularly around the rescinded AI Diffusion IFR and potential replacement rules, as well as licensing requirements for H20 sales to China. Macroeconomic factors such as tariffs, inflation, and global supply chain constraints pose ongoing risks. The company believes it has sufficient liquidity to meet operating requirements for at least the next twelve months, with $56.8 billion in cash, cash equivalents, and marketable securities. Capital return to shareholders remains a priority, with $24.2 billion in share repurchases and $488 million in dividends during the first half of fiscal 2026, and a new $60.0 billion repurchase authorization approved in August 2025.
NVIDIA's balance sheet remains strong with cash and equivalents of $11.6B and marketable securities of $45.2B, totaling $56.8B in liquid assets. Total debt is $8.5B, all long-term, with no commercial paper outstanding. Shareholders' equity grew to $100.1B from $79.3B at year-end, driven by net income and share repurchases. Inventory increased to $15.0B, with $886M in inventory provisions in Q2, reflecting robust demand and supply chain investments.
Total future commitments as of July 27, 2025, are $45.8B, with $30.9B due within the next six months. These include component purchases, long-term supply and capacity agreements, cloud service agreements, and other obligations. Additionally, the company expects to commence data center leases with future obligations of $7.1B between Q3 FY2026 and FY2030.
In the first half of FY2026, NVIDIA repurchased 193M shares for $24.2B. As of July 27, 2025, $14.7B remained under authorization. On August 26, 2025, the Board approved an additional $60.0B repurchase authorization, bringing total available to $71.2B. Dividends totaled $488M ($0.01 per share quarterly) in the first half. Debt remained essentially flat at $8.5B. Capital expenditures are not explicitly disclosed in the notes, but the cash flow statement shows $3.1B in purchases of property and equipment in the first half.
Compute & Networking segment generated $41.3B in Q2 revenue (88% of total), up 56% YoY, with operating income of $28.4B (68.6% margin). Graphics segment revenue was $5.4B, up 51% YoY, with operating income of $2.2B (41.4% margin). Geographically, U.S. customers contributed 50% of revenue, Singapore 22% (largely pass-through for U.S. customers), and Taiwan 18%. China (including Hong Kong) accounted for 6% of Q2 revenue.
Net income for H1 FY2026 was $45.2 billion, exceeding operating cash flow (OCF) of $42.8 billion. The primary reconciling items were stock-based compensation ($3.1B), depreciation/amortization ($1.3B), and deferred taxes ($2.2B benefit), offset by gains on securities ($2.1B) and working capital outflows. Significant working capital uses included accounts receivable ($4.7B) and inventories ($4.9B), reflecting rapid revenue growth and supply chain buildout.
Capital expenditures (capex) of $3.1 billion represented 7.2% of OCF, a moderate intensity. Despite the capex increase, free cash flow (OCF minus capex) was $39.7 billion, providing ample coverage for capital returns.
Capital returns totaled $24.3 billion, comprising $23.8 billion in share repurchases and $0.5 billion in dividends, representing a 57% payout ratio of OCF. The company also paid $3.4 billion in employee stock plan taxes, classified as financing activities.
Overall, cash generation remains robust, though working capital consumption and large share repurchases warrant monitoring. The cash balance increased by $3.1 billion to $11.6 billion.