On August 20, Nvidia Corp. (NASDAQ:NVDA) denied a report by The Information claiming it planned small-batch shipments of a China-tailored LPU AI chip by year-end. The denial lands less than a week before Nvidia reports fiscal second-quarter results on August 26, adding one more variable to a stock that already carries enormous expectations. The real test this earnings season is whether the growth holds up while China stays mostly closed off.
Bull Case: Growth That Keeps Outrunning Guidance
Nvidia guided fiscal second-quarter revenue to $91.0 billion, plus or minus 2%, and that outlook assumes zero data center compute revenue from China. Any licensed sales that do show up, layered on top of the H200 approvals Washington granted in May for Alibaba, Tencent, and ByteDance, would land as pure upside rather than something already priced into the number. Gross margin guidance sits near 75%, essentially flat with the prior quarter, which is a notable claim to make while revenue is set to nearly double year over year.
Nvidia beat its own guided range last quarter, posting $81.6 billion in revenue against a $78 billion guided midpoint, and its adjusted earnings have topped Wall Street’s estimates in each of the past four quarters. Demand looks just as strong beyond Nvidia’s own results. SpaceX, now building its AI infrastructure exclusively on Nvidia chips and targeting 10 gigawatts of compute by the end of 2027, is estimated to spend $150 billion to $250 billion on chips to get there, while Nvidia’s latest Form 13F revealed a new stake in SpaceX as the second-largest holding in its $63.4 billion investment portfolio.
Bear Case: The Math Getting Harder To Ignore
China remains the messiest part of the story. Jensen Huang said in May that Nvidia had largely conceded the country’s AI chip market to Huawei, and the back-and-forth over an LPU built for Chinese customers, following a March Reuters report that Nvidia was preparing China-compatible AI chips, only underscores how unsettled that relationship still is.
The guidance also embeds a real slowdown: the midpoint implies roughly $9 billion of new sequential revenue, down from about $13.5 billion added the quarter before, a step down to around 11% sequential growth from 20%. A slip in that 75% margin target would be a bigger warning sign than a modest revenue miss. Nvidia’s SpaceX stake carries its own risk, too. SpaceX posted a steep loss even as second-quarter sales grew 92%, with first-half AI data center capital spending surging to $23.55 billion from $3.32 billion in the prior-year period, and its staggered unlock schedule is more permissive than the standard 180-day lockup, which could pressure shares as more stock becomes tradable.
What The Market Is Pricing In
Hedge fund ownership of Nvidia climbed to 275 funds from 264 the prior quarter, suggesting institutional conviction is building rather than fading. Short interest sits at just 1.26% of float, which points to very little organized bearish positioning around the stock. As of August 20, Nvidia’s forward price-to-earnings ratio of 24.81 looks modest next to the growth still being guided to, which suggests the market isn’t pricing in much skepticism about the outlook holding.
The Number That Still Matters
Nvidia heads into its August 26 report with funds adding shares, short sellers largely absent, and a valuation that doesn’t scream excess given the growth on the table. But the guidance itself embeds a deceleration in sequential growth and assumes nothing from China, so the bulls need that margin line to hold near 75% while revenue keeps compounding. The bears’ case rests less on China, which Nvidia has already written out of its own numbers, and more on whether the SpaceX relationship becomes a source of strength or a drag as that company burns cash and unlocks more stock. The China chip denial itself may fade quickly.
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