To The Moon

Nvidia Earnings Preview: What to Watch on China, Margins, and Blackwell

AI and semiconductor giant $NVIDIA(NVDA)$   is scheduled to release its fiscal second-quarter 2026 earnings report after the market closes on August 27.

Core Financial Indicators

~Q2 Revenue: Guidance is $45 billion, representing a 50% year-over-year (YoY) increase and a 2% quarter-over-quarter (QoQ) rise. The market consensus is slightly higher at $46.1 billion.

~Q2 Gross Margin (GAAP): Guidance is 71.8%, a decrease of 3.3 percentage points YoY but an increase of 11.3 percentage points QoQ.

~Q2 Gross Margin (Non-GAAP): Guidance is 72%, down 3.7 percentage points YoY but up 0.7 percentage points QoQ.

~Q2 Net Income (GAAP): Guidance is $22.6 billion, up 36% YoY and 20% QoQ.

~Q2 Net Income (Non-GAAP): Guidance is $24 billion, up 42% YoY and 21% QoQ. The market consensus is $24.5 billion.

Three Things to Watch

The Impact of H20 and China-Specific Chips

The situation surrounding Nvidia's sales to China has been volatile. In its Q1 report, Nvidia disclosed that it took a $4.5 billion charge related to its H20 products following the U.S. ban announced on April 9. The ban meant that of the planned $7.1 billion in H20 revenue for Q1, only $4.6 billion was recognized, leaving $2.5 billion in products unshipped. The ban's full impact is expected to be more pronounced in Q2, with an estimated $8 billion revenue loss.

However, the U.S. government reversed course, lifting the H20 ban on July 15 and granting Nvidia a shipping license in early August, albeit with a new condition: 15% of the related revenue must be paid to the U.S. government.

Since Nvidia's Q2 fiscal period (May-July) has already concluded, the financial benefits from resuming H20 shipments will primarily be reflected in Q3 and Q4. Bernstein previously estimated that H20 could contribute an additional $15-20 billion in revenue in the second half of the year.

Three key variables remain:

~Cost Pass-Through: Can Nvidia pass the 15% government levy on to its customers? If demand in mainland China is strong enough—and given that H20 chips are priced below domestic alternatives—price hikes to offset the cost are a possibility.

~Real Demand in China: Will security concerns raised by Chinese state media and regulators, including the Cyberspace Administration of China (CAC), dampen corporate demand for H20 chips? This remains a critical uncertainty.

~Production and Delivery: Nvidia's Q1 report indicated a substantial inventory of H20 chips, suggesting short-term delivery is not an issue. However, sustained high demand would require new orders with $Taiwan Semiconductor (TSM.US)$ , whose 5nm and 4nm nodes are at full capacity. This could lead to a delivery timeline of at least two quarters.

The Path Back to 75% Gross Margin

Nvidia's gross margin has been a focal point for investors. The company's Non-GAAP gross margin fell from a peak of 78.9% in FY24Q1 to 71.3% in FY25Q1, dragged down by delays and the slow ramp-up of its Blackwell products, as well as the initial rollout of the lower-margin H20 chips.

Management previously guided for margins to recover to the 75% level in the second half of the year. A key question now is whether the resumption of shipments of the lower-margin H20 products will slow the pace of this recovery.

Tariff Impact, Blackwell Ultra Ramp-Up & The Road to Rubin

Nvidia is a key customer for TSMC's Arizona facility, and its flagship Blackwell and Hopper products are designed for the fab's N4 process node. In theory, this should minimize Nvidia's exposure to potential tariffs. However, the Arizona plant's current capacity of roughly 30,000 wafers per month is far from sufficient to meet Nvidia's needs. The speed of TSMC's capacity ramp-up in Arizona is therefore critical. Investors will be looking for an update from management on the earnings call.

Beyond tariffs, uncertainty clouds Nvidia's top-line potential. The market is divided on the company's revenue ceiling, with estimates heavily dependent on the volume ramp of the GB200 NVL72 and the shipment timeline for the Blackwell Ultra. The market will have to follow the company's guidance on a quarter-by-quarter basis to gauge the trajectory. Following the challenging production ramp-up of Blackwell, investors are closely monitoring the development and timeline of Nvidia's upcoming Rubin platform.

Option Market Signals

Heading into Nvidia's Aug 27 earnings, the options tape looks constructively bullish: spot keeps trending higher and the Put/Call ratio is 0.57. Implied volatility (IV) at 48.01% sits well above historical volatility (HV) at 26.84%, signaling an earnings-related uncertainty premium.

However, with IV Rank at 22 and IV Percentile at 37%, today's IV is in the lower-to-middle part of its 1-year range, implying a moderate—not extreme—move is priced.

Bottom line: positioning skews positive without euphoria.

Summary

Nvidia's earnings report is arguably the most important of the season, with the potential to define the AI narrative and influence the direction of the broader U.S. stock market. The key focal points for investors will be the outlook for H20 shipments to China, the progress of the Blackwell Ultra rollout, and a clear timeline for gross margins returning to the 75% benchmark.

~Potential Positive Catalysts: Increased CapEx from large hyperscalers.

~Risks to Monitor: The impact of tariffs on costs.

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