NVIDIA Corporation

Good afternoon. My name is Sarah and I will be your conference operator today. At this time, I would like to welcome everyone to NVIDIA's second quarter fiscal 2026 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. And if you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your questions, press star one again. Thank you. So, Shiahari, you may begin your conference.

Thank you. Good afternoon, everyone, and welcome to NVIDIA's conference call for the second quarter of fiscal 2026. With me today from NVIDIA are Jensen Wong, President and Chief Executive Officer, and Colette Kress, Executive Vice President and Chief Financial Officer. I'd like to remind you that our call is being webcast live on NVIDIA's Investor Relations website. The webcast will be available for replay until the conference call to discuss our financial results for the third quarter of fiscal 2026. The content of today's call is NVIDIA's property. It can't be reproduced or transcribed without our prior written consent. During this call, we may make forward-looking statements based on current expectations. These are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results in business, please refer to the disclosure in today's earnings release, our most recent forms 10-K and 10-Q, and the reports that we may file on Form 8-K with the Securities and Exchange Commission. All our statements are made as of today, August 27, 2025, based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During this call, we will discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our CFO commentary, which is posted on our website. With that, let me turn the call over to Colette.

Thank you, Toshio. We delivered another record quarter while navigating what continues to be a dynamic external environment. Total revenue was 46.7 billion, exceeded our outlook as we grew sequentially across all market platforms. Data center revenue grew 56% year over year. Data center revenue also grew sequentially despite the 4 billion decline in H20 revenue. NVIDIA's Blackwell platform reached record levels, growing sequentially by 17%. We began production shipments of GB300 and Q2. Our full-stack AI solutions for cloud service providers, neoclouds, enterprises, and sovereigns are all contributing to our growth. We are at the beginning of an industrial revolution that will transform every industry. We see $3 to $4 trillion in AI infrastructure spend by the end of the decade. The scale and scope of these build-outs presents significant long-term growth opportunities for NVIDIA. The GB200 NBL system is seeing widespread adoption with deployments at CSPs and consumer internet companies. Lighthouse model builders, including OpenAI, Meta, and Mistral are using the GB200 NBL72 at data center scale for both training next generation models and serving inference models in production. The new Blackwell Ultra platform has also had a strong quarter generating tens of billions in revenue. The transition to the GB300 has been seamless for major cloud service providers due to its shared architecture, software, and physical footprint with the GB200, enabling them to build and deploy GB300 racks with ease. The transition to the new GB300 rack-based architecture has been seamless. Factory builds in late July and early August were successfully converted to support the GB300 ramp. And today, full production is underway. The current run rate is back at full speed, producing approximately 1,000 racks per week. This output is expected to accelerate even further throughout the third quarter as additional capacity comes online. We expect widespread market availability in the second half of the year as CoreWeave prepares to bring their GB300 instance to market as they are already seeing 10x more inference performance on reasoning models compared to H100. Compared to the previous Hopper generation, GB300 and VL72 AI factories promise a 10x improvement in token per watt energy efficiency, which translates to revenues as data centers are power limited. The chips of the Ruben platform are in fab. The Vera CPU, Ruben GPU, CX9 SuperNIC, NVLink 144 scale up switch, Spectrum X scale out and scale across switch, and the silicon photonics processor. Ruben remains on schedule for volume production next year. Ruben will be our third generation NVLink rack scale AI supercomputer with a mature and full scale supply chain. This keeps us on track with our pace of an annual product cadence and continuous innovation across compute, networking, systems, and software. In late July, the US government began reviewing licenses for sales of H20 to China customers. While a select number of our China-based customers have received licenses over the past few weeks, we have not shipped any H20 based on those licenses. USG officials have expressed an expectation that the USG will receive 15% of the revenue generated from licensed H20 sales. But to date, the USG has not published a regulation codifying such requirement. We have not included H20 in our Q3 outlook as we continue to work through geopolitical issues. If geopolitical issues reside, we should ship $2 to $5 billion in H-20 revenue in Q3. And if we had more orders, we can bill more. We continue to advocate for the US government to approve Blackwell for China. Our products are designed and sold for beneficial commercial use, and every licensed sale we make will benefit the US economy, the US leadership, In highly competitive markets, we want to win the support of every developer. America's AI technology stock can be the world's standard if we race and compete globally. Notably in the quarter was an increase in Hopper 100 and H200 shipments. We also sold approximately 650 million of H20 in Q2 to an unrestricted customer outside of China. The sequential increase in hopper demand indicates the breadth of data center workloads that run on accelerated computing and the power of CUDA libraries and full stack optimizations, which continuously enhance the performance and economic value of our platform. As we continue to deliver both Hopper and Blackwell GPUs, we are focusing on meeting the soaring global demand. This growth is fueled by capital expenditures from the cloud to enterprises, which are on track to invest 600 billion in data center infrastructure and compute this calendar year alone, nearly doubling in two years. We expect annual AI infrastructure investments to continue growing, driven by the several factors, reasoning agentic AI requiring orders of magnitude more training and inference compute, global build-outs for sovereign AI, enterprise AI adoption, and the arrival of physical AI and robotics. Blackwell has set the benchmark as it is the new standard for AI inference performance. The market for AI inference is expanding rapidly with reasoning and agentic AI gaining traction across industries. Blackwell's rack scale NVLink and CUDA full stack architecture addresses this by redefining the economics of inference. New NV FP4 4-bit precision and NVLink 72 on the GB300 platform delivers a 50X increase in energy efficiency per token compared to Hopper, enabling companies to monetize their compute at unprecedented scale. For instance, a 3 million investment in GB200 infrastructure can generate 30 million in token revenue, a 10X return. NVIDIA's software innovation, combined with the strength of our developer ecosystem, has already improved Blackwell's performance by more than 2x since its launch. Advances in CUDA, Tensor RT LLM, and Dynamo are unlocking maximum efficiency. CUDA Library contributions from the open source community, along with NVIDIA's open libraries and frameworks, are now integrated into millions of workflows. This powerful flywheel of collaborative innovation between NVIDIA and global community contribution strengthens NVIDIA's performance leadership. NVIDIA is a top contributor to open AI models, data, and software. Blackwell has introduced a groundbreaking numerical approach to large language model pre-training. Using NVFP4, computations on the GB300 can now achieve 7x faster training than the H100, which uses FP8. This innovation delivers the accuracy of 16-bit precision with the speed and efficiency of 4-bit, setting a new standard for AI factor efficiency and scalability. The AI industry is quickly adopting this revolutionary technology with major players such as AWS, Google Cloud, Microsoft Azure, and OpenAI, as well as Coquere, Mistral, Kimi AI, Perplexity, Reflection, and Runway already embracing it. NVIDIA's performance leadership was further validated in the latest MLPerf training benchmarks, where the GB200 delivered a clean sweep. Be on the lookout for the upcoming MLPerf inference results in September, which will include benchmarks based on the Blackwell Ultra. NVIDIA RTX Pro servers are in full production for the world's system makers. These are air-cooled PCIe-based systems integrated seamlessly into standard IT environments and run traditional enterprise IT applications, as well as the most advanced agentic and physical AI applications. Nearly 90 companies, including many global leaders, are already adopting RTX Pro servers. Hitachi uses them for real-time simulation and digital twins, Lilly for drug discovery, Hyundai for factory design and AV validation, and Disney for immersive storytelling. As enterprises modernize data centers, RTX Pro servers are poised to become a multi-billion dollar product line. Sovereign AI is one on the rise as the nation's ability to develop its own AI using domestic infrastructure data and talent presents a significant opportunity for NVIDIA. NVIDIA is at the forefront of landmark initiatives across the UK and Europe. The European Union plans to invest 20 billion euros to establish 20 AI factories across France, Germany, Italy, and Spain, including five gigafactories to increase its AI compute infrastructure by tenfold. In the UK, The IS-UMBARD AI supercomputer powered by NVIDIA was unveiled at the country's most powerful AI system, delivering 21 exaflots of AI performance to accelerate breakthroughs in fields of drug discovery and climate modeling. We are on track to achieve over 20 billion in sovereign AI revenue this year, more than double than that of last year. Networking delivered record revenue of $7.3 billion and escalating demands of AI compute clusters necessitate high efficiency and low latency networking. This represents a 46% sequential and 98% year-on-year increase with strong demand across Spectrum X Ethernet, InfiniBand, and NVLink. Our SpectrumX enhanced Ethernet solutions provide the highest throughput and lowest latency network for Ethernet AI workloads. SpectrumX Ethernet delivered double-digit sequential and year-over-year growth with annualized revenue exceeding $10 billion. At Hotchips, we introduced Spectrum XGS Ethernet, a technology designed to unify disparate data centers into gigascale AI super factories. CoreWeave is an initial adopter of the solution, which is projected to double GPU-to-GPU communication speed. InfiniBand revenue nearly doubled sequentially, fueled by the adoption of XDR technology, which provides double the bandwidth improvement over its predecessor, especially valuable for the model builders. The world's fastest switch, NVLink, with 14x the bandwidth of PCIe Gen 5, delivered strong growth as customers deployed Grace Blackful NVLink rack-scale systems. The positive reception to NVLink Fusion, which allows semi-custom AI infrastructure, has been widespread. Japan's upcoming Fugaku Next will integrate Fujitsu's CPUs with our architecture via NVLink Fusion. It will run a range of workloads, including AI, supercomputing, and quantum computing. Fugaku next joins a rapidly expanding list of leading quantum supercomputing and research centers running on NVIDIA's Q2Q quantum platform, including ULIC, AIST, NNF, and NERSC, supported by over 300 ecosystem partners, including AWS, Google Quantum AI, Quantinium, Q-Era, and Psi Quantum. Just in Thor, our new robotics computing platform is now available. Thor delivers an order of magnitude greater AI performance and energy efficiency than NVIDIA, AGX, or N. It runs the latest generative and reasoning AI models at the edge in real time, enabling state-of-the-art robotics. Adoption of NVIDIA's robotics full-stack platform is growing at rapid rate. Over 2 million developers and 1,000-plus hardware, software applications and sensor partners taking our platform to market. Leading enterprises across industries have adopted Thor, including Agility Robotics, Amazon Robotics, Boston Dynamics, Caterpillar, Figure, Hexagon, Medtronic, and Meta. Robotic applications require exponentially more compute on the device and in infrastructure representing a significant long-term demand driver for our data center platform. NVIDIA Omniverse with Cosmos is our data center physical AI digital platform built for development of robot and robotic systems. This quarter, we announced a major expansion of our partnership with Siemens to enable AI automatic factories, leading European robotics companies including Agile Robots, Neuro Robotics and Universal Robots are building their latest innovations with the Omniverse platform. Transitioning to a quick summary of our revenue by geography, China declined on a sequential basis to low single digits percentage of data center revenue. Note, our Q3 outlook does not include H20 shipments to China customers. Singapore revenue represented 22% of second quarter's build revenue as customers have centralized their invoicing in Singapore. Over 99% of data center compute revenue billed to Singapore was for US-based customers. Our gaming revenue was a record. 4.3 billion, a 14% sequential increase and a 49% jump year on year. This was driven by the ramp of Blackwell GeForce GPUs as strong sales continued as we increased supply availability. This quarter, we shipped GeForce RTX 5060 desktop GPU. It brings double the performance, along with advanced ray tracing, neural rendering, and AI-powered DLSS4 gameplay to millions of gamers worldwide. Blackwell is coming to GeForce NOW in September. This is GeForce NOW's most significant upgrade, offering RTX 5080 class performance. minimal latency, and 5K resolution at 120 frames per second. We are also doubling the GeForce Now catalog to over 4,500 titles, the largest library of any cloud gaming service. For AI enthusiasts, On-device AI performs the best RTX GPUs. We partnered with OpenAI to optimize their open source GPT models for high quality, fast and efficient inference on millions of RTX enabled window devices. With the RTX platform stack, window developers can create AI applications designed to run on the world's largest AI PC user base. Professional visualization revenue reached 601 million, a 32% year-on-year increase. Growth was driven by an adoption of the high-end RTX workstation GPUs and AI-powered workload like design, simulation, and prototyping. Key customers are leveraging our solutions to accelerate their operations. Activision Blizzard uses RTX workstations to enhance creative workflows, while robotics innovator Figure AI powers its humanoid robots with RTX embedded GPUs. Automotive revenue, which includes only in-car compute revenue, was $586 million, up 69% year-on-year, primarily driven by self-driving solutions. We have begun shipments of NVIDIA Thor SoC, the successor to Orin. Thor's arrival coincides with the industry's accelerating shift to vision, language, model architecture, generative AI, and higher levels of autonomy. Thor is the most successful robotics and AV computer we've ever created. Thor willpower. Our full-stack drive AV software platform is now in production, opening up billions to new revenue opportunities for NVIDIA while improving vehicle safety and autonomy. Now moving to the rest of our P&L. Gap gross margin was 72.4%, and non-gap gross margin was 72.7%. These figures include a 180 million or 40 basis point benefit from releasing previously reserved H-20 inventory. Excluding this benefit, non-gap gross margins would have been 72.3%, still exceeding our outlook. Gap operating expenses rose 8% and 6% on a non-gap basis sequentially. This increase was driven by higher compute and infrastructure costs, as well as higher compensation and benefit costs. To support the ramp of Blackwell and Blackwell Ultra, inventory increased sequentially from 11 billion to 15 billion in Q2. While we prioritize funding, our growth and strategic initiatives in Q2, we returned 10 billion to shareholders through share repurchases and cash dividends. Our board of directors recently approved a 60 billion share repurchase authorization to add to our remaining 14.7 billion of authorization at the end of Q2. Okay, let me turn it to the outlook for the third quarter. Total revenue is expected to be $54 billion, plus or minus 2%. This represents over $7 billion in sequential growth. Again, we do not assume any H-20 shipments to China customers in our outlook. Gap and non-gap gross margins are expected to be 73.3%, 73.5%, respectively, plus or minus 50 basis points. We continue to expect to exit the year with non-GAAP gross margins in the mid-70s. GAAP and non-GAAP operating expenses are expected to be approximately $5.9 billion and $4.2 billion respectively. For the full year, we expect operating expenses to grow in the high 30s range year over year, up from our prior expectations of the mid-30s. We are accelerating investments in the business to address the magnitude of growth opportunities that lie ahead. GAAP and non-GAAP other income and expenses are expected to be an income of approximately 500 million, excluding gains and losses from non-marketable and public held equity securities. GAAP and non-GAAP tax rates are expected to be 16.5%, plus or minus 1%, excluding any discrete items. Further financial data are included in the CFO commentary and other information available on our website. In closing, let me highlight upcoming events for the financial community. We will be at the Goldman Sachs Technology Conference on September 8th in San Francisco. Our annual NDR will commence the first part of October. GTC Data Center begins on October 27th with Jensen's keynote scheduled for the 28th. We look forward to seeing you at these events. Our earnings call to discuss the results of our third quarter of fiscal 2026 is scheduled for November 19th. We will now open the call for questions. Operator, would you please poll for questions?