NVIDIA Corporation (NASDAQ:NVDA) showed in its fiscal second quarter that near-term growth no longer depends on a material contribution from China Data Center compute revenue. The chipmaker generated $96.2 billion of revenue, up 18% sequentially and 106% from a year earlier. Data Center revenue reached $89.0 billion, rising 117% year over year.
Both GAAP and company-defined non-GAAP gross margins came in at 75.0%. NVIDIA Corporation (NASDAQ:NVDA) calculates the latter by adjusting GAAP cost of revenue to exclude acquisition-related and other costs.
The next test is even larger. NVIDIA Corporation (NASDAQ:NVDA) guided for $108.0 billion of fiscal third-quarter revenue, plus or minus 2%, without assuming any Data Center compute revenue from China. The midpoint implies another $11.8 billion of sequential growth, or roughly 12%, after revenue had already doubled from the prior-year period.
The China exclusion sounds like a major handicap, but the latest quarter shows how little those sales currently contribute. Shipments of older Hopper Data Center products to China accounted for less than 1% of Data Center revenue. NVIDIA Corporation (NASDAQ:NVDA) 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.
Bull Case
The strongest support for the $108 billion outlook is the growth across NVIDIA’s Data Center customer categories. Hyperscale revenue reached $48.7 billion, up 102% from a year earlier and 13% sequentially. Revenue from AI clouds, industrial and enterprise customers, or ACIE, increased 138% year over year and 25% sequentially to $40.3 billion.
ACIE now represents roughly 45% of Data Center revenue. The category includes hyperscalers using AI clouds as well as AI-native companies, enterprises and sovereign customers. Its faster growth therefore signals broader end-demand, although some of it still originates with large cloud providers. The Vera Rubin platform is also ramping into full production, supporting another infrastructure-upgrade cycle.
Bear Case
A 75% gross margin alongside triple-digit revenue growth remains an extraordinary sign of pricing power. However, 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 Corporation (NASDAQ:NVDA) said rising memory costs could push gross margin to 71% to 72% in the fourth quarter before it settles at 72% to 73% in fiscal 2028. Planned price increases may offset part of that pressure, but they will also test how much of the higher component cost customers will absorb.
The scale of NVIDIA’s commitments raises the stakes. Supply and capacity commitments increased from $119 billion to $279 billion, primarily because of memory procurement. Hyperscalers still generated about 55% of Data Center revenue. Accounts receivable stood at $63.1 billion, while days sales outstanding increased to 60 from 45 due to extended payment terms on certain large, multi-quarter agreements with investment-grade customers.
Together, the larger commitments, longer collection period, and customer concentration make the durability and quality of customer spending increasingly important.
Hedge Fund Sentiment
The filings available so far reflect positions held before NVDA reported recent results. Insider Monkey’s database showed 285 hedge funds holding NVDA at the end of 2Q2026, up from 275 funds three months earlier.
Conclusion
NVIDIA Corporation (NASDAQ:NVDA) has already demonstrated that its growth can remain exceptional without a material contribution from China Data Center compute revenue. Its expanding customer mix makes the $108 billion outlook credible on that assumption, while a resumption of eligible China compute sales would provide additional upside. The larger uncertainty is whether customer capital spending can remain productive enough to support NVIDIA’s commitments and pricing as gross margins retreat from their recent peak.
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Disclosure: None. This article is originally published at Insider Monkey.
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