Nvidia Corporation (NASDAQ: NVDA) experienced a 1.8% decline in after-hours trading on Wednesday, despite reporting fiscal second-quarter revenue of $96.2 billion that surpassed analyst estimates by $3.9 billion. The chipmaker's results were overshadowed by the disclosure of massive AI-related commitments totaling $366 billion, raising questions about the sustainability of its growth trajectory.
The company's revenue for the quarter ended in July climbed 106% year-over-year, with adjusted earnings per share of $2.22, both exceeding FactSet consensus projections of $92.3 billion and $2.09, respectively. Data Center sales surged 117% to $89.0 billion, representing 92.5% of total revenue, while AI Clouds, Industrial, and Enterprise segments grew 138%, outpacing the 102% growth in the Hyperscale division.
Looking ahead, Nvidia guided for October quarter revenue of $108.0 billion, surpassing the consensus estimate of $104.2 billion. However, the company projected a one-point decrease in gross margin to 74% from 75% in the prior quarter. CEO Jensen Huang emphasized that "demand is accelerating," noting that the Vera Rubin platform has reached full production.
The market's reaction focused on the company's growing contractual obligations. Nvidia disclosed supply and capacity commitments of $279 billion, up sharply from $119 billion in the previous quarter, primarily driven by increased memory procurement. Additionally, the company reported $29 billion in cloud-service agreements and $25 billion in equity-investment commitments.
These commitments, while not immediate liabilities, represent multi-year obligations that total 8.4 times Nvidia's $56.6 billion in cash and marketable securities. The company also revealed $3.5 billion in guarantees tied to lease commitments of certain AI cloud collaborators, and limited its backing for a data-center expansion in Ohio to $105 billion.
Working capital pressures were evident as free cash flow dropped 56% sequentially to $21.34 billion. Receivables climbed to $63.1 billion, with collection time extending to 60 days from 45. Inventory rose 22% sequentially to $31.6 billion ahead of the Rubin launch. To fund these initiatives, Nvidia issued $25 billion in senior notes and returned nearly $26 billion via buybacks and dividends.
The after-hours decline erased approximately $90 billion in market value, with shares trading at $205.92 as of 16:30 EDT. Regular session volume reached 128.4 million shares, below the three-month average. Despite the drop, analysts remained optimistic, with Bank of America maintaining a Buy rating and a $350 price target, while KeyBanc also assigned a Buy rating with a $330 target.
Investors now face a critical juncture as Nvidia balances its aggressive expansion with rising financial commitments. The company's ability to convert its $108 billion revenue guidance into sustained profitability will be closely watched, especially as margins are expected to compress. The growing scale of contractual obligations introduces execution, credit, and asset utilization risks that could weigh on the stock if AI deployment slows.
