From a Big Event to a Yawn

Yesterday we wrote about how Nvidia (NVDA) earnings had the potential to either trash or turbocharge major stock indices.  So far, it’s done neither.  In theory, tomorrow’s Core PCE report can do the same, but traders are assuming that it too will have little impact.  That’s probably prudent.

The company reported a slight beat on its EPS estimates ($1.05 vs. $1.01 consensus) and revenues ($46.7 billion vs. $45.9bn consensus).  As we’ve noted before, beating published estimates is a necessary but not sufficient condition for a stock to rally in the current environment.  A post-earnings rally is more dependent upon a company reaffirming or raising expectations.  In other words, the future is more important than the recent past.  That said, the recent past is stunning.  Revenues grew 56% over last year’s quarter, and EPS grew by 54%.  Bear in mind – this is the world’s largest company growing at that phenomenal rate.

A key question of course is whether that can continue.  The company projected 54% Q3 revenue growth on sales of $54bn, which is almost bang in line with the prior consensus estimate of $53.9bn.  Importantly, that $54bn assumes no sales for China.  That could provide some valuable upside, but we also learned that the 15% situation regarding sales into China was much more in flux than many of us realized.  On one hand, we learned that NVDA has been granted export licenses to China and that they are hopeful that they will be able to sell Blackwell chips there, but we were also told that the widely reported 15% levy on chip sales to China is not official.  From the NVDA 10Q:

In April 2025, the U.S. government, or USG, informed us that a license is required for exports of our H20 product into the China market. As a result of these new requirements, we incurred a $4.5 billion charge in the first quarter of fiscal year 2026 associated with H20 for excess inventory and purchase obligations, as the demand for H20 diminished. In August 2025, the USG granted licenses that would allow us to ship certain H20 products to certain China-based customers, but to date, we have not generated any revenue or shipped any H20 products under 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. In the second quarter, we recognized approximately $650 million of H20 revenue from sales to an unrestricted customer outside of China, resulting in a $180 million release of previously reserved H20 inventory. There were no H20 sales to China-based customers in the second quarter.

Glass half-full: China sales can be a boon after being excluded from Q2 and Q3 results and estimates.  Glass half-empty: a situation that appeared relatively settled might be far from it. 

One more nitpick: Traders understandably viewed the announcement of a $60bn stock repurchase in the coming quarter as a positive.  For perspective, that is less than 2 days average daily volume at the current stock price (~242mm ADV * $180 ~= $43bn).  Ho-hum on that front.

There is no question that this stock is a behemoth and a money-making machine.  While the risk always remains that a stumble in NVDA could have significant broad market ramifications, nothing in yesterday’s report or conference call brought evidence of one – at least for the near future.

The final key piece of news for market watchers is tomorrow morning’s PCE report.  We got a bit of a preview today when the Q2 GDP was revised up to 3.5% from the 3.3% advance estimate but Core PCE and the GDP Price Index were unchanged from their prior readings (2.5%, 2.0%).  It seems reasonable to believe that the 0.3% consensus for a month-over-month increase in Core PCE is roughly correct.  Given that we are seeing modest, somewhat furtive attempts at a stock market rally this morning and the propensity of a Friday “ratchet effect”, anything other than an unexpectedly high Core PCE means that the short-term risks are to the upside, not the downside for the rest of the week.