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Cash & Chaos
NVIDIA Q2 FY2027 earnings: Blackwell lifted profit; cash conversion slowed
Oct 26, 2026
NVIDIA Q2 FY2027 earnings: Blackwell lifted profit; cash conversion slowed
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Transcript
0:00
Welcome to Cash and Chaos. October 26th, 2026. Nvidia's second quarter fiscal 2027 earnings. Blackwell lifted profit, cash conversion slowed.
0:13
Nvidia's August 26th report for fiscal second quarter 2027 shows ninety-six point two two one billion dollars of revenue and sixty-three point seven three four billion dollars of GAAP operating income.
0:27
Data center supplied about ninety-seven percent of annual revenue growth.
0:33
Free cash flow was twenty-one point three four one billion dollars, higher than last year, but fifty-six percent below first quarter as receivables, inventory and other cash requirements increased.
0:46
These are July-ended results. Third quarter guidance is not yet reported revenue. Second quarter fiscal 2027 is a July-ended quarter reported in August.
0:58
Nvidia's latest reported quarter as of October 26th, 2026 is fiscal second quarter 2027, ended July 26th and released August 26th. The fiscal year label is ahead of the calendar year.
1:13
This is not a report of results earned in calendar 2027. Fiscal third quarter results have not yet been released.
1:21
Revenue reached ninety-six point two two one billion dollars, up one hundred and six percent year over year and eighteen percent sequentially.
1:30
GAAP operating income rose one hundred and twenty-four percent annually to sixty-three point seven three four billion dollars as revenue grew faster than operating expenses.
1:41
The more demanding cash comparison is that quarterly free cash flow increased from last year but declined sharply from first quarter. Profit growth and cash conversion therefore need separate explanations.
1:55
The scale of the profit increase is clear in the scorecard.
1:59
Fiscal second quarter revenue reached ninety-six point two two one billion dollars versus forty-six point seven four three billion dollars a year earlier and eighty-one point six one five billion dollars in the previous quarter.
2:13
GAAP operating income reached sixty-three point seven three four billion dollars and gross margin seventy-five percent.
2:23
GAAP earnings per share of two dollars and forty-six cents and non-GAAP earnings per share of two dollars and twenty-two cents used different accounting bases.
2:33
Data centers supplied approximately ninety-seven percent of annual revenue growth.
2:39
Data center revenue increased from forty-one point zero nine six billion dollars to eighty-nine point zero two three billion dollars, supplying forty-seven point nine two seven billion dollars of Nvidia's forty-nine point four seven eight billion dollar annual revenue increase.
2:58
Cash and Chaos' calculation attributes approximately ninety-seven percent of the increase to that platform. Management identified the Blackwell Ultra infrastructure ramp as the principal operating driver.
3:12
Within data center, hyperscale revenue reached forty-eight point seven one zero billion dollars and AI clouds. Industrial and enterprise reached forty point three one three billion dollars.
3:25
The latter group grew twenty-five percent sequentially faster than hyperscale's thirteen percent. These are market platform classifications, not additional revenues to add to the data center total.
3:38
Nvidia reclassified one customer between the groups and recast comparisons, so the current CFO table is the consistent basis. The reportable segments use a different cut.
3:51
Compute and networking contributed eighty-eight point two nine nine billion dollars and graphics seven point nine two two billion dollars.
3:59
Edge computing, a market platform contributed seven point one nine eight billion dollars helped by Blackwell workstations while consumer PCs faced elevated memory and system prices.
4:11
Mixing segments and platforms would double count the same sales. Data center generated eighty-nine point zero two three billion dollars of the ninety-six point two two one billion dollar total.
4:25
The subcategories sit inside data center and must not be added to its total a second time. Investment gains explain why GAAP net income exceeded non-GAAP income.
4:37
GAAP net income rose only two percent sequentially despite a nineteen percent operating income increase.
4:44
First quarter had benefited from much larger equity security gains, fifteen point nine three six billion dollars versus seven point seven seven one billion dollars in second quarter.
4:57
The weaker net income growth therefore does not describe the change in the underlying operating profit engine.
5:04
Nvidia reconciles fifty-nine point six eight eight billion dollars of GAAP net income to fifty-three point nine five four billion dollars of non-GAAP net income by subtracting seven point two five one billion dollars of net pre-tax adjustments and adding back their one point five one seven billion dollar tax impact.
5:25
Non-GAAP operating income is slightly higher than GAAP operating income, while non-GAAP net income is lower because the investment gain exclusion dominates.
5:36
A separate comparability change matters starting in fiscal 2027, Nvidia's non-GAAP figures include stock-based compensation. Historical comparisons in the current release were recast on that basis.
5:50
Adding back stock compensation again would overstate the company-defined non-GAAP result.
5:56
The release records two point zero two seven billion dollars of quarterly stock compensation expense, which remains a real owner cost even though it is added back in operating cash flow.
6:08
Free cash flow rose annually but fell fifty-six percent for first quarter.
6:13
Operating cash flow was twenty-four point zero seven seven billion dollars versus fifteen point three six five billion dollars a year earlier and fifty point three four four billion dollars in first quarter.
6:27
Nvidia's free cash flow measure subtracts both purchases of property, equipment and intangible assets and principal payments on those assets.
6:36
Second quarter free cash flow was twenty-one point three four one billion dollars, up approximately fifty-nine percent annually, but down fifty-six percent sequentially.
6:47
The original cash flow statement explains the gap with net income. After non-cash adjustments, the quarter had fifty-four point seven eight four billion dollars before movements in operating assets and liabilities.
7:01
Those movements consumed a net thirty point seven zero seven billion dollars, producing the reported twenty-four point zero seven seven billion dollars operating cash inflow.
7:13
Non-cash investment gains are removed rather than treated as customer collections. The first-half result provides useful counter-evidence to a verdict based on the weaker sequential quarter.
7:25
Six-month operating cash flow was seventy-four point four two one billion dollars, and free cash flow was sixty-nine point eight nine five billion dollars. Nvidia still generated substantial cash.
7:39
The issue is the timing and capital tied up in sustaining this pace of growth rather than an absence of operating cash generation. Cash conversion weakened sharply against the previous quarter.
7:52
Operating cash flow fell from fifty point three four four billion dollars to twenty-four point zero seven seven billion dollars, and company free cash flow from forty-eight point five five four billion dollars to twenty-one point three four one billion dollars.
8:09
Both cash measures still exceeded the year-earlier quarter. That is a sequential slowdown alongside annual growth. Longer payment terms and the next product ramp absorb cash.
8:20
Receivables reached sixty-three point zero five nine billion dollars, up from forty point seven one billion dollars sequentially. Days sales outstanding increased from forty-five to sixty.
8:34
Management attributes the change to extended payment terms on large multi-quarter agreements with certain investment-grade customers. The ten Q says some such terms can range from ninety days to one year.
8:47
Inventory increased to thirty-one point five seven five billion dollars from approximately twenty-five point eight billion dollars as Nvidia prepared for Vera Rubin.
8:58
In the quarter's cash flow statement, receivables used twenty-two point three four six billion dollars.
9:05
Inventory used five point seven eight four billion dollars, and prepaid expenses and other assets used five point four nine seven billion dollars.
9:14
These requirements explain why recognized sales did not immediately become equivalent cash receipts.
9:22
Longer terms can support large customer deployments without implying default, and inventory can be productive preparation for a launch.
9:30
The counterweight is that cash remains committed before the eventual collection or sale. Repeated extensions, slower collections, or unsuccessful product transitions would make the same balances less reassuring.
9:44
Supply commitments and ecosystem support extend the risk beyond current inventory.
9:51
Supply and capacity commitments increased from one hundred and nineteen billion dollars in first quarter to two hundred and seventy-nine billion dollars at July 26th, primarily from memory and manufacturing facilities.
10:04
The filing says some arrangements can be canceled, rescheduled, or adjusted before firm orders, potentially with added costs. They are multi-year commitments, not current debt or one quarter spending.
10:16
The August disclosures also describe a subsequent one hundred and five billion dollar cap on guarantees for selected SB energy land, power and shell obligations supporting OpenAI.
10:28
These become effective in phases when conditions are met with the first lease commencement expected in fiscal twenty twenty-nine exposure declines as the tenant pays.
10:40
A guarantee cap is contingent credit exposure, not cash already spent or guaranteed revenue to Nvidia. Current funding also has several sources.
10:50
Second quarter included twenty-five billion dollars of new senior notes and approximately twenty-six billion dollars of shareholder returns.
10:58
These flows should be viewed alongside cash generation and strategic investments rather than assuming the dividend and repurchases were funded entirely by this quarter's free cash flow.
11:10
The operating franchise is highly profitable, while its ecosystem commitments are becoming more financially consequential. Second quarter exceeded the May outlook. The August third quarter outlook remains a forecast.
11:24
In May, Nvidia forecast second quarter revenue of ninety-one billion dollars plus or minus two percent.
11:32
Actual revenue of ninety-six point two two one billion dollars exceeded the ninety-two point eight two zero billion dollar high, and by three point four zero one billion dollars.
11:44
That is a comparison with the company's own dated forecast, not an analyst consensus beat.
11:49
In August, management forecasts third quarter revenue of one hundred and eight billion dollars plus or minus two percent, and GAAP and non-GAAP gross margins of seventy-four percent plus or minus half a percentage point.
12:04
The midpoint implies approximately twelve percent sequential revenue growth, but a lower gross margin than second quarter's seventy-five percent.
12:13
The call linked margin pressure to rising component costs, especially memory. The third quarter outlook assumes no data center compute revenue from China.
12:24
That qualification is narrower than assuming no Chinese revenue of any kind. Product categories and geographic definitions differ. These August forecasts are presented as forecasts.
12:36
This article does not turn them into reported third quarter results or infer an unverified future order book. Operating leverage is established. Collection and commitment discipline remain the tests.
12:49
Our reading is that Nvidia's Blackwell-led growth delivered substantial operating leverage, with data center doing nearly all the annual growth work.
12:58
The strongest qualification is the gap between rapidly recognized earnings and the cash timing required by receivables, inventory, and the next infrastructure cycle.
13:09
The picture would strengthen if customer collections caught up, new capacity and products converted into profitable sales, and margins held within credible cost assumptions.
13:20
It would weaken if payment terms kept stretching, inventory required repeated write-downs, or ecosystem support obligations outgrew the economic returns they enabled.
13:32
A strong business result does not by itself establish an attractive share valuation. That's cash and chaos. Find the full edition and original sources in the show notes.
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