Nvidia Q2 Preview: The AI Bubble Is Popping

Let’s get this out of the way: Nvidia is still a juggernaut. It’s sitting on a ~$4 trillion pedestal, and nothing in tech gets to sneeze without Jensen’s leather jacket catching the cold first. But pedestals are tall, wobbly things. With fiscal Q2 2026 results due after the bell on Wednesday, the market is braced for another superlative quarter… and for the first real signs that the AI party’s bar tab has arrived. Consensus revenue sits around $45–$46.5 billion, up ~50% year-over-year, and the spotlight is squarely on Data Center, Blackwell’s ramp, and China. SemiAnalysisIGNVIDIA NewsroomS&P Global

If that sounds euphoric, it is. But the edges of the story are fraying. GPU rental prices are sliding, power grids are straining, China is a regulatory minefield, and hyperscalers’ capex bills look less like “investment” and more like “addiction.” Those are the tells you look for when a bubble starts to hiss. This isn’t an “Nvidia is doomed” screed; it’s a reality check before Q2 numbers hit and everyone rushes to interpret a tick in guidance as a fresh gospel. Let’s tour the pressure points—then lay out the Q2 checklist that separates signal from confetti.

1) Expectations Are Already Olympian

Nvidia has trained investors to expect blowouts, and Q2 is framed no differently. Visible Alpha/consensus pegs revenue near $46.4B, with Data Center again doing the heavy lifting. The wrinkle: consensus DC gross margins for FY26 have been grinding down, with the Blackwell transition adding cost and mix complexity—Visible Alpha shows the FY26 DC gross margin estimate drifting over 100 bps lower versus last quarter (to ~74.1%). You can grow and compress at the same time. That’s what “the top is priced in” often looks like. ReutersS&P Global

The stock’s colossus valuation compounds the setup risk. Nvidia crossed (and flirted with) $4T this summer, a level that bakes in years of flawless execution and hyperscaler capex that never blinks. Forward P/E hovers around ~40x by several trackers—lofty for a company whose customer base increasingly squeezes price per token and per FLOP. Great companies can be over-owned too. Reuters+1GuruFocus

Translation for Q2: Even if the print is “as advertised,” guidance needs to argue that margin pressure is transient and that the Blackwell ramp will expand economics, not just units. Anything less, and perfection discounts become gravity.

2) Hyperscaler Capex: The Strongest Tailwind… and a New Headache

The hypers are still opening the firehose. Alphabet lifted 2025 capex guidance from $75B to $85B in July, specifically citing servers and accelerated data center construction. Meta upped its 2025 capex range to $66–$72B. Wall Street tallies suggest the Big Four’s 2025 AI-centric outlays could crest into the mid-$300 billions across fiscal calendars. That’s a lot of racks to feed. Alphabet Investor Relations+1Meta InvestorYahoo Finance

But there’s a catch: return on those dollars is murkier than the breathless deckware implies. Morningstar’s analysts warn that mega-cap AI capex binges tend to dent stock performance as competition and supply swell; and CFOs everywhere are discovering that accelerated depreciation on rapidly obsoleting hardware can pinch operating income. The joke is no joke: every new chip generation makes the last one feel like an 8-track. Business Insider+1

What to watch in Q2: hyperscaler commentary Nvidia relays (and what hypers themselves said last month) about pace and composition of 2H/2026 capex—does growth moderate, does the mix tilt to shorter-lived assets, and are ROI yardsticks turning from “train big” to “serve cheap”? Hints already surfaced that FY26 capex growth at some buyers could trail FY25, as priorities tilt toward near-term revenue alignment. If so, the step-function in demand can turn into a staircase. Finextra Research

3) China: Regulatory Yo-Yo, Revenue Whiplash

Nvidia’s H20 has become a geopolitics piñata. After months of license drama, reports say component suppliers were told to pause some H20-related work; China has prodded domestic champions to consider local alternatives; and the U.S. licensing stance remains a moving target. Analysts now pencil in little to no Q2 contribution from China—a non-trivial hole in any “everything’s fine” narrative. Reuters+1Barron's

The near-term punchline is not just “less China revenue.” It’s uncertainty: any re-green-lighted shipments still face demand damage from a state-encouraged pivot to domestic suppliers—and fresh U.S. rules can land mid-quarter. Uncertainty is the enemy of multiples. If Nvidia signals that China is a 2026 story at best, the market may finally stop treating the out-years as guaranteed. Reuters

4) Blackwell: A Marvel That Also Costs More to Ship, Power, and Cool

Blackwell GB200/NVL72 is an engineering leap—and a rack-scale lifestyle. You’re not just buying chips; you’re buying 120 kW of liquid-cooled commitment per rack, new NVLink fabric, and facilities that can swallow it. That’s capex-inside-capex. Even after vendors reportedly resolved early NVL72 rack issues (overheating, liquid-cooling leaks, software bugs), the physics bill didn’t get cheaper. Power and density are the new supply chain. NVIDIASunbird DCIMData Center Dynamics

Every hyperscaler is suddenly a power developer. Reuters, JLL, the EIA, Deloitte—pick your analyst deck; they all say the same thing: grid constraints and power inflation are the gating factor for 2025–2028 AI buildout. If power access dictates the tempo, the demand curve flattens not on need but on voltage. That’s how bubbles deflate: demand isn’t gone; it’s deferred and discounted. ReutersJLLU.S. Energy Information AdministrationDeloitte

Watch in Q2: any color on time-to-power and time-to-revenue for Blackwell racks. If lead times from POs to productive tokens are stretching because sites wait on electrons, investors will begin modeling longer paybacks and lower near-term throughput per dollar deployed. TechRadar

5) Price Is a Feature—And It’s Falling

A year ago, renting an H100 felt like booking Taylor Swift seats. Today, multiple clouds and marketplaces advertise sub-$3/hr H100s, with case studies and TCO blogs explaining the price collapse: more supply, more providers, and customers pivoting budgets to Blackwell. Even headlines about $1/hr H100s (yes, often spotty/marketplace and subject to caveats) tell you the direction of travel. That’s demand meeting supply—and supply meeting used inventory coming off early clusters. JarvislabsRunpodCybernews

This matters because Nvidia’s premium pricing power ultimately flows from customers’ ability to monetize tokens. If inference keeps getting cheaper and model quality converges across open-source and proprietary stacks, the willingness to pay top-tick for training farms wanes. Prices don’t have to crash for the bubble to deflate; they just have to normalize while capacity keeps arriving. SemiAnalysis

6) Rivalry Is No Longer Theoretical

AMD isn’t catching Nvidia on software tomorrow, but CDNA4/MI350 is shipping into an ecosystem that’s actually usable now, with ROCm 7, rack-scale solutions, and partners who know they must discount aggressively to win sockets. Supply growth—any supply growth—pressures the price umbrella. Meanwhile Google’s TPU v6e shows hypers will keep vertical alternatives alive, if only to bargain. The customer playbook is obvious: dual source, co-develop, and hammer on TCO. TBRTS2 Space

Nvidia’s roadmap remains blinding (Blackwell now, Rubin next), but Blackwell Ultra/GB300 ramps in 2H25 and Rubin’s 2026 cadence have their own execution risks. Even unfounded delay chatter is enough to make procurement teams re-pace purchases to avoid being the proud owner of yesterday’s racks at tomorrow’s prices. TweakTownBarron's

7) The Monetization Gap Is Real

The single most uncomfortable truth of the AI boom: a shocking amount of spend is still chasing product-market fit. Yes, copilots are real. Yes, ad relevance ticked up. But the revenue needle from generative AI specifically is incremental, not exponential, across many buyers. When Morningstar waves a flag that capex bloat can compress returns, they’re channeling every CFO who’s now audited last year’s “we have to own 20K GPUs” memo and asked, “To do what, exactly?” Business Insider

Implication for Q2: listen for Nvidia’s commentary on enterprise outside top hypers, sovereigns, and frontier labs. If non-mega customers are slower to sign for NVL72-scale projects, the law of large numbers catches up to the backlog math. The bubble doesn’t pop with a bang—it leaks via the “mid-market” going from green to yellow.

8) China’s Whiplash Redux: Inventory & Write-Down Risk

One under-appreciated angle: inventory risk around H20 and any China-specific SKUs. Reports this year ranged from big orders into TSMC to halt the line. If the policy weather changes fast, inventory goes from asset to write-down overnight—the least sexy line item in semis, and the most telling about how turbulent the channel really is. Q2 is where we learn whether management will quantify these cross-currents or keep it high level. Reuters+1

9) The Grid Is The Moat (For Now) — But Moats Don’t Print EPS

Utilities, regulators, and data-center REITs are living their best lives. But for Nvidia’s buyers, grid scarcity is the opposite of operating leverage. If you need six-figure kilowatts per rack and the queue is long, your “AI factory” becomes a “construction project.” Every quarter of delay stretches depreciation, slows revenue, and increases the temptation to rent cheap GPUs short-term instead of deploying $100M for on-prem racks that arrive after your model’s mojo has been overtaken. Again: deflation by delay. ReutersBloom Energy

10) Valuation Gravity Works—Even For Legends

Markets don’t need Nvidia to miss; they just need storytelling to cool. The stock is up >30% YTD and ~14x since late 2022. When the world’s most important stock becomes the world’s most crowded trade, small disappointments earn big reactions. Reuters framed this week exactly that way: Nvidia is the swing factor for tech indices into month-end. That’s not a moat; that’s a weather pattern. Reuters

What Would “Bubble Popping” Actually Look Like?

Not a crash. A sequence:

Guidance comes in “fine, not insane.” The print beats; the guide nudges, not rockets. Shares wobble because perfection was priced in. IG
Gross margin steps down a bit on Blackwell mix and data-center system costs; management frames it as temporary. (It usually is—until it isn’t.) S&P Global
Hyperscalers begin pacing capex to available power and ROI milestones rather than “as fast as possible.” Street models fade out-year growth a touch. Alphabet Investor RelationsMeta Investor
GPU rental pricing keeps drifting lower as supply and secondary markets expand. TCO narratives shift from “own at any cost” to “rent when needed.” JarvislabsCybernews
China remains lumpy—enough to keep the optionality in limbo, and enough to cap the multiple while the U.S. licensing regime zigzags. Reuters

When that happens, you don’t get fireworks; you get air slowly leaving the inflatable castle.

The Q2 Checklist (a.k.a. How to Separate Hype from Health)

1) Topline vs. Guide

Reported revenue vs. ~$45–$46.5B expectations; sequential DC growth vs. Q1’s $39.1B DC print. NVIDIA NewsroomReuters

2) Data Center Gross Margin

Direction of DC gross margin and commentary on Blackwell costs, NVL72 rack economics, and learning-curve timeline. S&P Global

3) Blackwell Ship/Ramp Cadence

Any update on resolved rack issues, ship dates for GB300 “Blackwell Ultra,” and early customer productivity vs. H100/H200 baselines. Execution beats promises. Data Center DynamicsTweakTown

4) China Attribution

Q2 China contribution (if any), H20 status, and whether modified SKUs or new export licenses change 2H mix. Even a roadmap matters. Reuters+1

5) Demand Outside the Top 10

Enterprise and “mid-market” AI spend: pilots turning to production or still “innovation theater”? This is the buffer that turns a pause into a plateau. (No single source here—listen to the call.)

6) Opex & Depreciation Dynamics

Any hints that buyer economics are shifting: shorter useful lives, higher depreciation, or heavier operating complexity at the rack level. That flows back into volume elasticity. Business Insider

7) Share Repurchase & Cash Flow

With valuation rich, buyback pace and cash generation are the ballast. If FCF tracks, the floor rises; if working capital swells, the floor creaks.

The Contrarian Case, Point-By-Point

“But demand is infinite.”
Demand is bounded—by power, by budget, and by the law of diminishing returns. The grid is the new fab; getting 120 kW per rack isn’t a “maybe later,” it’s a “where exactly, and at what price?” When power constrains deployment, amazing order books turn into slower revenue recognition. JLLReuters

“Blackwell will re-accelerate everything.”
Yes on performance. No guarantee on profits. Rack-scale liquid cooling, heavy NVLink fabrics, and higher-touch install projects introduce more non-GPU cost. Nvidia can still win handily; the question is how much of that win accrues at the same margin as before. Consensus already nudges margin lower. S&P Global

“China will come back.”
It might. But right now, the posture is pause-and-prod. Even with licenses, state guidance can steer demand to domestic silicon. Optionality is not the same thing as backlog. Reuters

“Competition doesn’t matter.”
It does—especially to pricing. AMD’s strategy is cost-competitive and open(-ish). Google and others will keep internal TPUs viable to bargain vendor terms. Competition doesn’t need share parity to change ASPs. TBRTS2 Space

“GPU prices aren’t falling where it matters.”
Marketplaces and second-tier clouds are real demand sponges—and price signals. Sub-$3/hr H100s aren’t a rounding error; they’re the canary for elasticity. As supply grows, that canary sings louder. Jarvislabs

So… Is the AI Bubble Popping?

Call it deflating, not detonating. Nvidia will likely post another astonishing quarter because it’s supplying the shovel everyone still needs. But even gold rushes mature. The next phase is about throughput per watt, dollars per token, and time-to-power—not press-release superlatives. When buyers’ ROI math hardens and the power queue lengthens, growth curves bend. That bending is the hiss you hear.

If you’re long, the Q2 test isn’t whether Nvidia “beats.” It’s whether management can convincingly address five things:

Blackwell unit momentum and margin math—why gross margin shouldn’t drift down as racks scale. S&P Global
China clarity—not perfect, but enough to model 2026 with fewer if-thens. Reuters
Hyperscaler pacing—a view into how 2H25/2026 capex aligns with power, deployment, and revenue milestones. Alphabet Investor Relations
Enterprise breadth—evidence that demand is diversifying beyond the top wallets.
Cash discipline—FCF, inventory control, and buybacks as shock absorbers.

Meet those, and the bubble can settle into a durable—if less vertical—trajectory. Miss them, and perfection gets repriced.

Quick Reference: The Facts Behind The Drama

Earnings timing: Nvidia reports fiscal Q2 2026 after market close on Wednesday, Aug 27, 2025. SemiAnalysis
Q1 baseline: FQ1’26 revenue $44.1B; Data Center $39.1B. NVIDIA Newsroom
Q2 consensus: Around $45–$46.5B revenue; modest consensus DC margin compression into FY26. IGReutersS&P Global
Valuation context: Market cap flirted with $4T this summer; forward P/E roughly ~40x. ReutersGuruFocus
China friction: Reported H20 pauses; evolving license regime; Beijing nudging locals to domestic chips. Reuters+1
Power reality: 120 kW racks aren’t theoretical; grid constraints dictate deployment tempo. Sunbird DCIMReuters
Price signals: H100 rental pricing has fallen sharply across clouds/marketplaces in 2025. Jarvislabs
Competition: AMD MI350/ROCm 7 push, internal TPUs; GB300 “Blackwell Ultra” talked up for 2H25. TBRTweakTown

Bottom Line

If Q2 is a coronation, enjoy the parade—but watch the yield on the tiara. The AI buildout is real, and Nvidia still architects the winning stack. But the market isn’t paying for “real.” It’s paying for perpetual acceleration. And perpetual acceleration meets physics, budgets, and geopolitics in 2H25.

When the most loved stock in the world steps down from “perfect” to “very good,” that’s what a bubble quietly popping looks like. Not the end—just the end of free money for every rack you can install. Keep your eyes on margins, power, China, and the pace of check-writing. Everything else is noise.