Nvidia Stock Down 1.2%. Why Growth May Slow And Why Not To Buy $NVDA

Core Viewpoint - Nvidia's recent performance shows a mix of record sales and challenges, particularly in the data center segment, leading to a cautious outlook for future growth [3][4][5]. Financial Performance - Nvidia reported Q2 2026 revenue of $46.74 billion, a 56% increase year-over-year, exceeding analyst expectations by $68 million [6]. - Data center revenue for Q2 was $41.1 billion, also up 56%, but fell short of expectations by $200 million [6]. - Adjusted earnings per share for Q2 were $1.05, reflecting a 73% increase and surpassing estimates by 4 cents [6]. - Q3 revenue guidance is set at $54 billion, slightly above analyst expectations of $53.1 billion, assuming no sales in China [6]. Market Dynamics - Nvidia's data center sales were impacted by a 1% decline in GPU sales, totaling $33.8 billion, primarily due to the absence of revenue from China [4][11]. - The company faced a significant loss of potential revenue, estimating $8 billion in sales from H20 chips that could not be sold due to geopolitical issues [11]. - Nvidia's CEO expressed optimism about future growth, projecting that the largest AI companies could spend $3 trillion to $4 trillion by 2030, with Nvidia potentially capturing 70% of that market [8]. Growth Challenges - The company's revenue growth has been decelerating, with a notable drop from 126% in 2023 to 56% in the latest quarter [13]. - A significant concern is the lack of returns on AI investments, with 95% of companies reporting no return, which may affect future demand for Nvidia's data center products [16]. - The overall semiconductor market is around $600 billion, indicating that Nvidia's projected growth to $360 trillion by 2036 is unrealistic without entering new markets [14]. Political and Geopolitical Factors - Nvidia's ability to revive sales in China may hinge on political developments, as recent meetings with U.S. leadership have hinted at potential licensing for H20 chip sales [9][10]. - The company has taken substantial writedowns due to the lack of sales in China, which could impact its financial stability if the geopolitical environment does not improve [11]. Investor Sentiment - Despite the challenges, analysts see potential upside, with Nvidia's shares projected to rise about 14% to an average price target of $205 per share [17]. - The reopening of the Chinese market is viewed as a significant opportunity for Nvidia, but ongoing political tensions may hinder this potential [18].