Nvidia’s shares fall after mixed results: should you invest?

Shares in Nvidia, the world’s largest company, have gained 34% in 2025 to 28 August, and 43% over the past 12 months.

But unusually for the semiconductor giant, Nvidia’s stock fell in the two sessions following its latest earnings release.

Nvidia (NASDAQ:NVDA) has become one of the most popular stocks in the world thanks to consistently smashing through revenue and earnings expectations over the past few years.

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It has outperformed the other Magnificent Seven stocks during this period, becoming the first company to reach a $4 trillion market cap. Nvidia currently accounts for around 7.5% of the flagship S&P 500 index.

But Nvidia’s Q2 FY 2026* results were mixed. While Nvidia beat analysts expectations with revenue of $46.7 billion (a 56% year-over-year increase) and adjusted earnings per share (EPS) of $1.05 (up 54%), data centre revenue of $41.1 billion fell short of expectations (which, depending on the poll, were generally in the $41.2-41.3 billion range).

Data centre is Nvidia’s key division, relating specifically to the computer chips that are powering the artificial intelligence (AI) rollout which has catapulted Nvidia’s stock into its current dominant position in the stock market.

There was also cause for alarm as the company reported no sales to China, the world’s largest semiconductor market outside the US.

“The China market, I’ve estimated to be about $50 billion of opportunity this year,” said Nvidia’s CEO Jensen Huang in the earnings call following results. “You would expect it to grow 50% per year, as the rest of the world’s AI market is growing as well. It is the second largest computing market in the world.”

Nvidia’s shares fell 0.8% on 28 August, the day after the results were announced, following an initial pullback of around 3% in after-hours trading.

*Nvidia’s financial year ends in January, so the results announced in August 2025 covered the second quarter of its 2026 financial year.

What is happening with Nvidia’s China sales?

One of the key question marks that is weighing on Nvidia’s share price at present is the status of its chip exports to China.

Following controls on high end tech from the US to China that came into effect under the Joe Biden administration, Nvidia has developed products specifically for the Chinese market, in particular its H20 chip. These are less powerful versions of its AI chips than those sold to customers outside of China.

But in April, president Donald Trump announced further restrictions on even these custom-designed chips. At its Q1 2026 results (announced in May 2025, as Nvidia’s financial year ends in January), Nvidia revealed that its quarterly profits had suffered a $4.5 billion hit as a result of its inability to sell to the China market, which CEO Jensen Huang estimates could be worth $50 billion.

Nvidia announced it was reapplying for H20 export licenses and that the US government had assured the company these would be granted in July.

It was met with positivity, given how key the China market is for Nvidia. But there have been further twists in the tale since.

Reports then emerged in August that the condition for these licenses was an agreement that Nvidia (and rival AMD) would be required to share 15% of revenue from China sales with the US government to secure these licences.

Mirroring US attitudes towards Chinese technology companies (such as ByteDance, owner of Tiktok), the Chinese government cautioned several of the country’s largest tech companies in August over their purchases of Nvidia chips, which it claims pose a national security risk. There are also question marks over whether it is economically viable for Nvidia to resume the (paused) production of its H20 chips when it is expected to replace them with a new model, the B30A.

These question marks came to a head in Nvidia’s Q2 earnings, which revealed that no H20 chips had been sold to China during the quarter.

“Some Chinese customers have received licenses, but Nvidia is waiting for clarity from the government, as nothing has been codified since the administration said it will take 15% of sales,” said Nancy Tengler, CEO and CIO at Laffer Tengler Investments. “Nvidia seems to be OK with this, and could ship $2-5 billion in H20s in Q3.”

Nvidia’s revenue guidance for Q3 ($54 billion) assumes no Chinese sales. Should a breakthrough in US-China trade occur before then, it would be a major tailwind for Nvidia’s shares.

Can Nvidia keep increasing its earnings?

The bull thesis for Nvidia is that AI is going to transform every facet of life and business, and that all of this value created will feed into Nvidia’s bottom line.

“With AI infrastructure investments continuing to grow with the company expecting between $3 trillion to $4 trillion in total AI infrastructure spend by the end of the decade, the chip landscape remains Nvidia’s world with everybody else paying rent,” said Dan Ives, head of global technology research at Wedbush Securities.

But detractors will point out that this thesis falls apart if Nvidia’s profit growth ever underwhelms. “Any chink in [Nvidia’s] profits is likely to be taken very badly by the market,” says Ed Monk, associate director at Fidelity International.

Nvidia's year-over-year revenue growth has slowed from over 250% a year and a half ago to 53.5% in the most recent quarter. This flattening of revenue growth is inevitable as companies grow, but it is part of the reason why markets pay close attention to the numbers that Nvidia puts up relative to expectations.

Monk adds that persistent inflation could be a headache for companies like Nvidia given the investment case relies on profit levels that are extrapolated many years into the future. “As such, they stand to be eroded by any uptick in inflation and rates, which reduces their value in real terms,” he says.

In this context, revenue drivers like the China market take on huge importance for anyone considering buying Nvidia’s shares. If this huge market is closed off to Nvidia over the long term, it could dent the kind of revenue and profit growth that underpins the investment thesis for Nvidia.

Are Nvidia’s shares good value?

Nvidia’s shares currently trade at 51 times trailing earnings, and 40 times its expected earnings over the next 12 months, according to data from Yahoo Finance (as of US market close on 28 August).

This hefty valuation of Nvidia’s shares has given plenty of investors pause for thought over the past two years – even if these metrics are well below the 100-times trailing earnings the stock traded at during 2023.

Bulls will argue that this is a reasonable price to pay for such a successful company, but there is a lot of potential downside should profits underwhelm at any point.

For investors looking for other means of exposure, there are various ways to find value in AI without having to pay the steep valuations that Nvidia commands.