NVIDIA's (NVDA.US) latest guidance indicates a slowdown trend after two years of rapid growth. Has "AI faith" been shaken? The world's most valuable publicly traded company, NVIDIA, provided modest revenue forecasts for the current quarter, suggesting that growth is decelerating after two years of remarkable expansion in artificial intelligence investment.

The company stated in a Wednesday announcement that third-quarter sales (ending in October) for the current fiscal year would be approximately $54 billion. This figure aligns with Wall Street's average expectations, though some analysts had previously anticipated sales exceeding $60 billion. The forecast excludes revenue from China's data center business, meaning the current guidance does not consider any H20 sales revenue to China.

This outlook has intensified concerns about the unsustainable pace of artificial intelligence system investments. Difficulties encountered in the Chinese market have also impacted NVIDIA's business. Although the Trump administration recently relaxed restrictions on certain AI chip exports to China, this easing has not yet translated into revenue recovery.

The company also approved an additional $60 billion stock buyback program. As of the end of the second quarter, NVIDIA had $14.7 billion remaining under its previous buyback program.

During the period ending July 27, sales grew 56% to $46.7 billion, compared to the average expectation of $46.2 billion. While this growth added over $16 billion to quarterly revenue compared to the same period last year, it represents the smallest increase in more than two years. Adjusted earnings per share reached $1.05 (excluding certain items), beating analyst expectations of $1.01.

NVIDIA's data center division, now operating as an independent unit larger than any other chip manufacturer, generated $41.1 billion in sales, up 56% year-over-year, slightly below the average expectation of $41.3 billion. Gaming-related revenue, previously NVIDIA's primary income source, reached $4.29 billion, exceeding the average expectation of $3.8 billion. The automotive business segment generated $586 million in sales, slightly below expectations.

**China Sales Impact**

NVIDIA continues to grapple with the effects of intensifying U.S.-China competition, where semiconductor technology has become a major point of contention. In April, the Trump administration strengthened restrictions on chip manufacturers' exports of data center processors to Chinese customers, effectively excluding NVIDIA from that market. Subsequently, the White House adjusted its stance, stating that the U.S. would allow some shipments but would take a 15% cut of sales revenue in exchange.

Meanwhile, China has encouraged reducing the use of American technology in AI systems used by the Chinese government. These policy changes make it difficult for Wall Street to predict how much revenue NVIDIA can recover in that market. Some analysts have made predictions involving billions of dollars in impact, while others refuse to make any forecasts about Chinese sales until the company's situation becomes clearer.

NVIDIA reported no H20 artificial intelligence chip sales to Chinese customers in the second quarter. The company also noted that the U.S. government has not formally determined the plan to extract 15% profit from Chinese AI chip sales and has denied such arrangements.

NVIDIA stated in a filing: "Any request by the U.S. government to obtain a certain percentage of revenue could expose us to litigation risks, increase our costs, harm our competitive position, and benefit competitors not subject to such arrangements."

NVIDIA indicated that ultimately $2 billion to $5 billion worth of H20 chips would be shipped to China. The specific amount depends on obtaining U.S. government permits, with currently only a "small number" of customers having received approval. Chief Financial Officer Colette Kress said during a conference call: "If we can receive more orders, we can charge more fees." She also stated that the company would continue urging the U.S. government to approve sales licenses for the more advanced Blackwell chips in China.

Before the earnings announcement, analysts' predictions for NVIDIA's third-quarter revenue differed by approximately $15 billion—one of the largest such prediction gaps in the company's history.

**AI Boom Cooling?**

Emarketer analyst Jacob Bourne stated in a report that research results show some signs: if short-term benefits from AI applications remain difficult to quantify, major data center operators' spending may decrease to some extent. Large cloud service providers account for approximately half of NVIDIA's data center business.

These customers are currently purchasing Blackwell chips, the company's latest generation product. NVIDIA reported that Blackwell sales increased 17% from the first quarter. In May, NVIDIA stated that its new product line generated $27 billion in sales, accounting for approximately 70% of data center revenue.

However, NVIDIA's earnings were released several weeks after its largest customers, including Meta, Alphabet, Microsoft, and Amazon, announced their results. These four companies invest billions of dollars quarterly in infrastructure construction, competing to develop AI models and services for consumers and enterprises.

Under the leadership of co-founder and CEO Jensen Huang, this 32-year-old chip manufacturer suddenly became the tech industry's most successful case. For most of its development history, NVIDIA was constrained by larger competitors such as Intel, mainly maintaining slim profits by selling graphics processors to computer gamers.

NVIDIA's major breakthrough came from adapting graphics processing units (GPUs) to run artificial intelligence software—what Huang calls "accelerated computing." In 2022, NVIDIA was still only a fraction of Intel's size, with Intel's annual revenue not reaching what NVIDIA now generates in a single quarter.

Today, NVIDIA's annual sales are expected to reach $200 billion—projected to exceed $300 billion by 2028. This would give the company approximately one-third of the chip industry's total revenue.

However, NVIDIA's business mainly relies on procurement plans from a few companies. Microsoft, Amazon, and other major data center operators account for approximately half of its sales. To diversify its business, Huang is exploring new markets and offering more product varieties. This includes providing complete computer systems, networking equipment, software, and services. He is determined to drive widespread AI adoption across the economy and demands his team develop new hardware and software at extremely rapid speeds.

Currently, this Santa Clara, California-based company holds a dominant position in its AI chip (accelerator) market. Internal efforts by companies like Amazon and early challenges from potential competitors like AMD have not significantly impacted its market share.

Analysis indicates that NVIDIA's forecast suggests growth is slowing after a remarkable two-year period of rapid expansion in AI investment. But it faces other challenges as well. Beyond NVIDIA's difficulties in the Chinese market, its biggest growth obstacle lies in supply shortages. Like most chip manufacturers, NVIDIA doesn't have its own factories but relies on outsourced production, primarily sourcing from Taiwan Semiconductor Manufacturing Company. Accelerating new technology production remains an ongoing challenge.

**Overvalued?**

After NVIDIA's stock price soared rapidly over three years, making it the highest-valued company in history by market capitalization, investors naturally worry whether this AI chip manufacturer's stock price has risen to unreasonable levels.

But according to Wall Street's commonly used metrics for measuring company value, NVIDIA's stock price is not high at all. This Silicon Valley company's stock recently traded at approximately 34 times analysts' expected earnings for the next 12 months.

While a P/E ratio of 34 might be excessive for banks, oil producers, or retail chains, such valuations are not uncommon for tech companies with strong quarterly earnings growth, and NVIDIA's earnings growth is very rapid.

In comparison, cybersecurity company CrowdStrike (CRWD.US) also released its earnings report this afternoon, and according to LSEG data, the company's stock price has exceeded expected earnings by 400 times. NVIDIA competitor chip manufacturer AMD's stock price is approximately 32 times its expected earnings.

Crucially, NVIDIA's P/E ratio is currently lower than many periods in its own history. Its P/E ratio soared to nearly 70 times in 2021, when NVIDIA's stock price rose significantly due to strong demand for the company's gaming processors during the pandemic. But according to LSEG data, its recent P/E ratio is below its own five-year average P/E ratio of 36 times.

However, the company's stock price has risen 35% this year, pushing its market value above $4 trillion. After years of continuous increases, investors have become more critical of its performance, especially given high U.S. stock market valuations, where any small error in the company's performance could cause market dissatisfaction.

**Stock Decline Drags Down U.S. Market**

"The ripple effect caused by NVIDIA might be more interesting than NVIDIA's actual stock movement," said Chris Murphy, co-head of derivatives strategy at well-known Wall Street market maker Susquehanna.

NVIDIA's earnings report is crucial for whether U.S. and global stock markets can continue the "super bull market" that began in April. Market expectations for continued explosive expansion of global AI computing infrastructure demand have driven NVIDIA's market value above $4 trillion, and this strong expectation is now pushing NVIDIA toward a $5 trillion market value.

Given NVIDIA's high weighting in the S&P 500 index—it currently ranks among the largest components alongside Apple and Microsoft—and its core importance in the global AI computing industry chain, NVIDIA has long faced exceptionally high expectations from Wall Street analysts and investors. Since 2023, NVIDIA has maintained an explosive performance growth trajectory, rarely disappointing analysts and investors with quarterly financial data and performance outlook, which has been the core supporting logic for the AI investment boom that began in early 2023.

However, after the earnings announcement, NVIDIA's stock price fell approximately 3% in after-hours trading. U.S. stock index futures also declined, with Nasdaq 100 index futures dropping 0.4%. U.S. stocks fell in late trading after the S&P 500 index hit a record high.

NVIDIA's cautious market outlook has raised concerns that the momentum of significant growth in AI investment may be weakening, casting doubt on the durability of this key market driver this year.

Since April, global stock markets have continued rising as investors bet that the AI boom would continue driving tech company earnings growth, while easing trade tensions have also boosted overall risk appetite.

Capital.com senior market analyst Kyle Rodda wrote: "This information intensifies concerns about slowing AI investment and future economic growth deceleration. Since the stock has nearly reached historical highs, several minor flaws in the results caused the stock price to decline and may impact overall market sentiment today."