# How NVIDIA makes money

CXProWealth Business Lens · NVIDIA (NVDA) · Q2 FY2027

Read from the 10-Q for the period 2026-04-27 to 2026-07-26, filed 2026-08-26 with the SEC (accession 0001045810-26-000075): https://www.sec.gov/Archives/edgar/data/1045810/000104581026000075/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $96.2B (+105.9% on the year)
- Operating income: $63.7B (operating margin 66.2%)
- Net income: $59.7B (net margin 62.0%)
- Gross margin: 75.0%
- Free cash flow: $21.4B (22.2% of revenue)
- Cash conversion (operating cash flow / net income): 0.40x
- Capital expenditure: 2.8% of revenue

## Where the money goes (Q2 FY2027)

- Hyperscale → Revenue: $48.7B
- AI Clouds, Industrial, & Enterprise → Revenue: $40.3B
- Edge Computing → Revenue: $7.2B
- Revenue → Cost of revenue: $24.1B
- Revenue → Gross profit: $72.1B
- Gross profit → Total operating expenses: $8.4B
- Total operating expenses → Research and development: $7.1B
- Total operating expenses → Sales, general and administrative: $1.4B
- Gross profit → Operating income: $63.7B
- Operating income → Income before income tax: $63.7B
- Other income, net → Income before income tax: $7.8B
- Income before income tax → Income tax expense: $11.8B
- Income before income tax → Net income: $59.7B

## Where the revenue comes from

### Products and services (Segment Information - Schedule of Revenue by Market Platform (Details))

| Member | Value | Share |
|---|---:|---:|
| Hyperscale | $48.7B | 50.6% |
| AI Clouds, Industrial, & Enterprise | $40.3B | 41.9% |
| Edge Computing | $7.2B | 7.5% |

The members sum to total revenue.

### Segments (Segment Information - Schedule of Reportable Segments (Details))

| Member | Value | Share |
|---|---:|---:|
| Compute & Networking | $88.3B | 91.8% |
| Graphics | $7.9B | 8.2% |

The members sum to total revenue.

### Regions (Segment Information - Schedule of Revenue by Geographic Regions (Details))

| Member | Value | Share |
|---|---:|---:|
| China (including Hong Kong) | $7.9B | 8.2% |
| Other | $1.3B | 1.3% |

The members do not sum to total revenue.

## Income statement, as filed

| Line | Q2 FY2027 | Of revenue |
|---|---:|---:|
| Revenue | $96.2B | 100% |
| Cost of revenue | $24.1B | 25.0% |
| **Gross profit** | $72.1B | 75.0% |
| Research and development | $7.1B | 7.3% |
| Sales, general and administrative | $1.4B | 1.4% |
| **Total operating expenses** | $8.4B | 8.7% |
| **Operating income** | $63.7B | 66.2% |
| Other income, net | $7.8B | 8.1% |
| **Income before income tax** | $71.5B | 74.3% |
| Income tax expense | $11.8B | 12.3% |
| **Net income** | $59.7B | 62.0% |
| Basic (in dollars per share) | $2 | 0.0% |
| Diluted (in dollars per share) | $2 | 0.0% |
| Basic (in shares) | 24,190,000,000 |  |
| Diluted (in shares) | 24,285,000,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2008 | $4.1B | $836.3M | $797.6M | $1.3B | — | — |
| FY2009 | $3.4B | -$70.7M | -$30.0M | $249.4M | — | — |
| FY2010 | $3.3B | -$98.9M | -$68.0M | $487.8M | $77.6M | $410.2M |
| FY2011 | $3.5B | $255.7M | $253.1M | $675.8M | $97.9M | $577.9M |
| FY2012 | $4.0B | $648.3M | $581.1M | $909.2M | $138.7M | $770.4M |
| FY2013 | $4.3B | $648.2M | $562.5M | $824.2M | — | — |
| FY2014 | $4.1B | $496.0M | $440.0M | $835.0M | — | — |
| FY2015 | $4.7B | $759.0M | $631.0M | $906.0M | — | — |
| FY2016 | $5.0B | $747.0M | $614.0M | $1.2B | — | — |
| FY2017 | $6.9B | $1.9B | $1.7B | $1.7B | — | — |
| FY2018 | $9.7B | $3.2B | $3.0B | $3.5B | — | — |
| FY2019 | $11.7B | $3.8B | $4.1B | $3.7B | — | — |
| FY2020 | $10.9B | $2.8B | $2.8B | $4.8B | — | — |
| FY2021 | $16.7B | $4.5B | $4.3B | $5.8B | — | — |
| FY2022 | $26.9B | $10.0B | $9.8B | $9.1B | $976.0M | $8.1B |
| FY2023 | $27.0B | $4.2B | $4.4B | $5.6B | $1.8B | $3.8B |
| FY2024 | $60.9B | $33.0B | $29.8B | $28.1B | $1.1B | $27.0B |
| FY2025 | $130.5B | $81.5B | $72.9B | $64.1B | $3.2B | $60.9B |
| FY2026 | $215.9B | $130.4B | $120.1B | $102.7B | $6.0B | $96.7B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +65.5% (year before +114.2%): slowing
- Operating income: +60.1% (year before +147.0%): slowing
- Net income: +64.7% (year before +144.9%): slowing
- Free cash flow: +58.9% (year before +125.2%): slowing

## Operating figures stated in the filing

- Supply and capacity commitments: $279.0B (as of 2026-07-26). "We have significantly increased our supply and capacity commitments from $119 billion last quarter to $279 billion as of July 26, 2026 to meet future demand." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Supply and capacity commitments: $119.0B (as of 2026-04-26). "We have significantly increased our supply and capacity commitments from $119 billion last quarter to $279 billion as of July 26, 2026 to meet future demand." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Largest direct customer, share of revenue: 16.0% (as of 2026-07-26). "For the second quarter of fiscal year 2027, one direct customer represented 16% of total revenue, which was primarily attributable to the Compute & Networking segment." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Largest direct customer, share of revenue: 23.0% (as of 2025-07-27). "For the second quarter of fiscal year 2026, two direct customers represented 23% and 16% of total revenue, all of which was primarily attributable to the Compute & Networking segment." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Revenue from customers headquartered outside the U.S., share: 38.0% (as of 2026-07-26). "Revenue from sales to customers headquartered outside of the United States accounted for 38% and 30% of total revenue for the second quarter and first half of fiscal year 2027, respectively, and 30% and 35% of total revenue for the second quarter and first half of fiscal year 2026, respectively." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Revenue from customers headquartered outside the U.S., share: 30.0% (as of 2025-07-27). "Revenue from sales to customers headquartered outside of the United States accounted for 38% and 30% of total revenue for the second quarter and first half of fiscal year 2027, respectively, and 30% and 35% of total revenue for the second quarter and first half of fiscal year 2026, respectively." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Employees in Israel operations: 6,200 employees (as of 2026-07-26). "Our global supply chain for networking products, including our Israel operations, with approximately 6,200 employees, supporting research and development, operations, and sales and marketing, has not been significantly impacted by the conflict in the Middle East." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)

## Key insights

### Only 40.3% of net income arrived as operating cash

Operating cash flow of $24.1B was 40.3% of $59.7B net income, as extended payment terms moved profit into receivables rather than cash.

Operating cash flow was $24.1B this quarter against $50.3B the quarter before, while net income was $59.7B. Cash flow equalled 40.3% of net income, against 86.3% the prior quarter. A year earlier, operating cash flow was $15.4B against net income of $26.4B. Free cash flow of $21.4B was 22.2% of revenue, far below the 66.2% operating margin. _(from the filing)_
The filing names the cause: an increase in receivables from "extended payment terms on large multi-quarter agreements with certain investment-grade customers". It says these financing arrangements "will continue to affect the timing of our operating cash flows." Capital spending was small at $2.7B, 2.8% of revenue, so the gap comes from working capital, not investment. _(from the filing)_
A gap like this is timing if the receivables convert to cash on schedule. If payment terms keep lengthening as deals grow, part of the growth is being funded from NVIDIA's own balance sheet. Operating cash flow relative to net income over the next few quarters is the line that separates the two readings. _(analysis)_

### Supply commitments now exceed last year's revenue

Commitments rose to $279B from $119B in one quarter, 129.2% of last fiscal year's $215.9B revenue, to secure memory and manufacturing capacity.

Supply and capacity commitments reached $279B at quarter end, up from $119B a quarter earlier. The filing says they are "primarily memory and manufacturing facilities" for current and future architectures, made "to meet future demand" while the company is "currently experiencing certain supply constraints". The total equals 129.2% of last fiscal year's revenue of $215.9B. _(from the filing)_
Some of the agreements "may be cancelable, rescheduled, or adjustable for our business needs prior to placing firm orders", and the filing adds that changes "may result in additional costs." It does not say how much of the total is flexible. _(from the filing)_
This is one decision seen from two sides. In a market limited by memory and manufacturing capacity, reserved supply lets NVIDIA ship while others wait. If demand estimates prove high, the commitments remain, and the filing itself records inventory and purchase-obligation charges taken when demand for earlier China products fell away. _(analysis)_

### 88.3% of gross profit reached operating income

Operating expenses grew 55.3% against revenue growth of 105.9%, falling to 8.7% of revenue, so most of the added gross profit flowed through.

Gross profit was $72.1B and total operating expenses $8.4B, so 88.3% of gross profit reached operating income of $63.7B. Research and development of $7.05B made up 83.9% of operating expenses; sales, general and administrative costs were 1.4% of revenue. Operating expenses rose 55.3%, driven, the filing says, by "higher compute infrastructure and compensation and benefits costs". _(from the filing)_
The same structure cuts both ways in the history. Revenue of $27.0B produced operating income of only $4.2B, a 15.7% margin, the year after $26.9B of revenue had produced $10.0B. Last fiscal year, revenue of $215.9B produced operating income of $130.4B, a 60.4% margin. _(from the filing)_
By segment, Compute & Networking earned $62.7B on $88.3B of revenue, 71.0%, and Graphics $3.9B on $7.9B, 49.2%. The filing's segment measure leaves out stock-based compensation and some corporate costs, so the two segments add up to more than consolidated operating income. _(from the filing)_
The engineering budget is largely set by the product roadmap rather than by units sold, so a fall in revenue would reach operating income faster than revenue, as the earlier year shows. The leverage comes with scale and depends on keeping it. _(analysis)_

### Equity gains supply a tenth of pre-tax profit

Other income of $7.8B, mostly unrealized gains on stakes in other companies, was 10.9% of pre-tax income and moves with valuations, not shipments.

Other income, net, rose to $7.8B from $2.8B a year earlier, up 181.0%. The filing says the gains were "primarily driven by unrealized gains in equity securities". The line was 10.9% of income before tax. Income tax took 16.5% of pre-tax income, and net income of $59.7B was 93.7% of operating income of $63.7B. _(from the filing)_
The quarter before shows how large the line can get: net income of $58.3B exceeded operating income of $53.5B, at 108.9% of it. This quarter operating income rose to $63.7B from $53.5B, yet net income moved only to $59.7B from $58.3B. The filing's six-month figures show most of the period's equity gains fell in the earlier quarter. _(from the filing)_
The filing describes these stakes as ecosystem investments, including AI model makers and infrastructure financiers, some of which buy or build on NVIDIA's products. Their value moves with private and public valuations rather than with shipments, so operating income is the cleaner read of the business, and the distance between it and net income is worth tracking. _(analysis)_

### Competitive edge

- **Prices set by system value, not by parts cost** Gross margin rose 2.55 points to 75.0% on Blackwell Ultra mix, and the filing says pricing does not move with short-term cost changes.
- **Growth is spreading beyond the largest cloud buyers** AI Clouds, Industrial, & Enterprise grew 138.1% to 41.9% of revenue, while the largest direct customer fell to 16% from 23%.

### What to watch

- **Commitments and guarantees turn customer risk into NVIDIA's cost** NVIDIA backs some customers' data center leases and agrees to buy AI cloud capacity they cannot sell, so a buyer's distress could reach its results.
- **Shut out of China's data center market** China, including Hong Kong, was 8.2% of revenue by customer headquarters, and the filing says NVIDIA is effectively foreclosed from its data center market.
- **Demand depends on customers finding power, land and capital** Data center sales need sites with land, power and financing, and the filing warns its demand estimates can be inaccurate and swing revenue.

## Operating income by segment

- Compute & Networking: $62.7B (98.4% of operating income)
- Graphics: $3.9B (6.1% of operating income)

## Investor view

**Supply commitments more than doubled to $279B in one quarter as NVIDIA locks in capacity for years of demand**

### How it makes money

NVIDIA sells accelerated computing platforms that combine "processors, interconnects, software, algorithms, systems, and services". The Compute & Networking segment, which holds the data center business, brought in $88.3B of the quarter's $96.2B revenue, 91.8%. Graphics, the GeForce and workstation GPUs, brought in $7.9B, or 8.2%. _(from the filing)_
The buyers fall into three groups. Hyperscale, the largest cloud companies, paid $48.7B, 50.6% of revenue. AI Clouds, Industrial, & Enterprise, which covers AI natives, enterprises, sovereign customers and specialist AI clouds, paid $40.3B, 41.9%. Edge Computing, which includes workstations and consumer PCs, paid $7.2B, 7.5%. _(from the filing)_
NVIDIA designs the chips and systems and buys wafer fabrication, memory and components from suppliers. Cost of revenue, mainly semiconductors, memory, boards and assembly, took $24.1B, 25.0% of revenue, leaving $72.1B of gross profit. Research and development of $7.05B and sales, general and administrative costs of $1.35B left operating income of $63.7B. _(from the filing)_
The filing states that pricing "does not fluctuate with short-term changes" in costs. Read with the margin, that points to pricing on value: a customer buying a full data center system pays for the computing it gets, and the parts bill is a minor input to that price. Very little sits between gross profit and operating income, because the main cost after manufacturing is engineering shared across every product. _(analysis)_

### What shifted

Revenue was $96.2B against $46.7B a year earlier, up 105.9%. The fastest group was AI Clouds, Industrial, & Enterprise, up 138.1%, which the filing credits to "end-demand from AI natives, enterprises, and sovereign customers, as well as hyperscalers utilizing AI clouds". Its share of revenue rose 5.68 points to 41.9%. Hyperscale more than doubled on Blackwell Ultra but lost share. Edge Computing grew 27.5% and fell 4.6 points to 7.5% of revenue, as "elevated memory and systems prices" slowed consumer PC sales. _(from the filing)_
Gross margin rose 2.55 points to 75.0%, which the company attributes to "improved mix from Blackwell Ultra". Operating expenses grew 55.3%, about half the pace of revenue, driven by "higher compute infrastructure and compensation and benefits costs", so they fell 2.84 points to 8.7% of revenue. Research and development rose 64.4% to $7.05B. Operating margin reached 66.2%, up 5.39 points. _(from the filing)_
Below operating income, other income rose to $7.8B from $2.8B, up 181.0%. The filing says the gains were "primarily driven by unrealized gains in equity securities", that is, mark-ups on stakes NVIDIA holds in other companies. That line was 10.9% of income before tax. Income tax took $11.8B, 16.5% of pre-tax income. Net income was $59.7B, up 125.9% from $26.4B. _(from the filing)_
Cash lagged profit. Operating cash flow was $24.1B, 40.3% of net income of $59.7B, against $50.3B in the prior quarter. Free cash flow was $21.4B, 22.2% of revenue, while operating margin was 66.2%. The filing names the cause: an increase in receivables from "extended payment terms on large multi-quarter agreements with certain investment-grade customers". _(from the filing)_
The customer and supply profile moved too. The largest direct customer was 16% of revenue, against 23% for the largest a year earlier. Customers headquartered outside the U.S. were 38% of revenue, up from 30%. Supply and capacity commitments rose to $279B from $119B the quarter before, more than the whole of last fiscal year's revenue of $215.9B. _(from the filing)_

### Risks in the filing

The newest risk factor is about commitments and guarantees. NVIDIA commits capital years ahead for supply, cloud services and data center leases, and says: "If future demand, our needs or plans differ from our expectations, we may be unable to reduce these commitments." It also guarantees parts of customers' data center leases, including a campus that will host OpenAI's compute, and has agreed to buy capacity AI clouds cannot sell, so a customer's financial distress could become NVIDIA's cost. _(from the filing)_
Export controls remain the largest named external risk. The company says it is effectively shut out of China's data center market, that sales it was licensed to make there were blocked by the Chinese government, and that the exclusion helps rivals build larger ecosystems. China, including Hong Kong, was 8.2% of quarterly revenue by customer headquarters. Further U.S. rules, possible chip-tracking mandates and a Chinese antitrust finding on the Mellanox acquisition are all named. _(from the filing)_
Demand depends on what customers can build. The filing warns that land, power, data center shells and capital are needed for every deployment, that less-capitalized buyers struggle to get financing, and that customers may delay new architectures. It adds: "Demand estimates for our products can be inaccurate and create volatility in our revenue or supply levels." Revenue is concentrated, with one direct customer at 16% of revenue. _(from the filing)_
Supply and operations are concentrated by geography. NVIDIA depends on suppliers "especially in Taiwan and South Korea", and its networking supply chain includes Israel operations with approximately 6,200 employees, which the company says a wider Middle East conflict could disrupt. It now also carries more debt after a senior notes issue, and names refinancing and covenant risk. _(from the filing)_
Two of these risks already show in the results. Commitments and customer financing appear in the gap between profit and operating cash this quarter, and in the doubling of supply commitments. Export controls show in China's small share of revenue. The others, financial distress at a customer whose lease NVIDIA backs or a supply break in Asia, have not appeared in the results; they are exposures, not events. _(analysis)_

## Founder view: mechanisms

### One engineering base, sold many times

NVIDIA spends most of its operating budget on one engineering effort, a common architecture of chips, networking and software, and sells the result to hyperscalers, AI clouds, enterprises, workstation users and PC buyers. The cost of designing the platform is paid once; each additional system sold carries only its manufacturing cost. Once revenue passes the engineering budget, almost every extra dollar of gross profit falls to operating income. _(analysis)_

### Sell the whole system, price the outcome

NVIDIA does not sell a chip at a markup on its cost. It sells processors, networking, software and full systems as one platform, and prices them on the computing the customer gets. Integration is the value: the buyer gets a working data center system faster than by assembling parts, and the parts bill becomes a minor input to the price. _(analysis)_

### Buy the bottleneck before demand arrives

In a market limited by supply, the company that has reserved the scarce inputs, here memory, manufacturing capacity and packaging, can sell while others wait. NVIDIA commits to suppliers years ahead, turning its balance sheet and its suppliers' trust into availability that competitors cannot quickly match. _(analysis)_

### Finance the customer to keep demand moving

When customers cannot fund their buildout fast enough, the supplier can fund part of it: longer payment terms, equity stakes in customers and partners, guarantees on their data center leases. NVIDIA now does all three. It converts its own cash and credit into demand for its products, and takes on part of the customer's risk in exchange. _(analysis)_

### Backstop the channel to reach smaller buyers

The largest buyers can fund their own data centers; startups, enterprises and sovereign buyers often cannot. Under a model NVIDIA introduced this quarter, AI clouds buy its systems and NVIDIA commits to cloud service agreements as a backstop: it takes capacity they cannot sell to third parties and may share in revenue from capacity they do sell. The partner gets the confidence to buy; NVIDIA gets reach into a wider set of end customers. _(filing)_

## Member research

Signed-in members read, on the page: what NVIDIA's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- NVIDIA 10-Q for the period to 2026-07-26: https://www.sec.gov/Archives/edgar/data/1045810/000104581026000075/ (2026-08-26)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-01 · as of 2026-11-01