NVIDIA (NVDA Quick QuoteNVDA - Free Report) posted decent results, reporting second-quarter revenue of $46.74 billion, a 56% year-over-year surge, and earnings per share of $1.05, above Zacks Consensus Estimates of $46.14 billion of revenues and $1 earnings per share, respectively.

For most companies, the quarter would be a blockbuster. But for Nvidia—whose results are closely watched to measure the strength of the AI boom—the standard is pretty high. Shares of NVDA remained under slight pressure post earnings release and lost 0.8% on Aug. 28, 2025, as NVIDIA’s data center revenue of $41 billion narrowly missed analysts’ estimates.

Revenues from the data center segment, its largest business line (which includes sales of chips used to train and refine artificial-intelligence models), came in at $41.1 billion for the quarter, narrowly missing analyst estimates of $41.2 billion. The reported data came against the $26.2 billion recorded in the year-ago period.

Still-Strong Chip Demand of NVIDIA

NVIDIA’s report revealed that the AI demand remains strong, as of now. The company guided for $54 billion in third-quarter sales, marking about 15% year-over-year growth, even without incorporating contribution from China, which once made up around 20% of its data center revenue, per Morgan Stanley analyst Joseph Moore, as quoted on Investopedia.

Morgan Stanley’s Moore argued that NVIDIA’s guidance actually understates true demand, pointing to continued shortages: “Compute shortages remain intense enough [that] customers are still buying three-year-old Hoppers,” as quoted on Investopedia. NVIDIA’s next-generation Blackwell systems are set for wider availability in the second half of 2025.

Market Reaction: While NVIDIA Down, AI Peers Up

The earnings triggered a split in markets. Other AI-related names rallied on Aug. 28, 2025. Micron (MU) (up 3.6%) and Broadcom (AVGO) (up 2.8%) gained on that day. Cloud providers like Amazon (AMZN) (up 1.1%), Alphabet (GOOG) (up 2%), and Oracle (ORCL) (up 1.9%) also advanced on Aug. 28.

AI-focused company CoreWeave Inc. (CRWV) surged by as much as 6.1% on Aug. 28, 2025. Is this showing the start of a shift in investors’ preferences?

Evidence of strong enterprise AI adoption was also reflected in Snowflake’s (SNOW) better-than-expected results. SNOW shares gained about 20% yesterday (read: Snowflake Stock Surges on Earnings Beat: ETFs in Focus).

What Are the Threats in NVIDIA Investing?

NVIDIA-Big Tech Go Hand-in-Hand

NVIDIA’s business is closely tied to Big Tech’s spending. Microsoft, Amazon, Alphabet, and Meta collectively represent about 41% of NVIDIA’s annualized revenue, according to Bloomberg, as quoted on Yahoo Finance. Together, these behemoths are likely to shell out $364 billion in fiscal 2025 on AI infrastructure.

Like many analysts like Stifel analyst Ruben Roy, we also believe that any pause in this spending could be a major risk to NVDA, as quoted on Yahoo Finance. Stifel’s Ruben Roy called it “inevitable” at some point, though not before 2026. Still, for now, AI demand looks steady.

Fears about easing AI spending have heightened in recent weeks after an MIT report showed 95% of companies are seeing no returns from generative AI and OpenAI CEO Sam Altman also floated the bubble fear in AI, as quoted Yahoo Finance (read: AI Fatigue Hits Tech Biggies: Inverse ETFs in Focus).

Margin Pressures and Rising Costs

While sales growth remains impressive, profitability trends were not as hopeful. CFO Colette Kress pointed to higher operating expenses ahead, which could flatten or compress margins in the second half, which, in turn, could put pressure on earnings.

Geopolitical Challenges in China

China poses another challenge. The company has negotiated with the U.S. government a deal for allowing chip sales in China with a 15% revenue-sharing arrangement, but the rule has yet to be codified. The future of business in China is still undecided.

CEO Huang described China as a $50 billion market this year, as quoted in Fortune, but rising competition from local players like Huawei and Cambricon poses threats. Then there is the rise of low-cost AI players like DeepSeek, which we all know rattled the U.S. tech market earlier this year (read: DeepSeek Buzz Boosts China Tech ETFs).

Valuation: A Concern?

NVIDIA shares have gained 26% in the year-to-date period and about 48% over the past one year. The stock is currently trading at 35.33X forward 12-month earnings, which compares with 37.24X for the Zacks sub-industry – Semiconductor - General, 27.89X for the Zacks sector – Technology, and 22.88X for the S&P 500 Index.

With higher valuations and a huge market cap, even minor misses, future threats to margins, or uncertainty around China are enough to leave investors skeptical about NVDA stock. If NVDA’s business is so closely interlinked with Big Tech, then sooner or later, NVDA has to fall prey to any backtrack in the huge Big Tech capex.

While this quarter shows NVIDIA is still in the heart of the AI game, investors are growing uncertain about the far future. And that reflects in the share price movement. The threats discussed above raised questions about whether future earnings momentum can keep pace with lofty valuations. NVDA shares are down about 3% today.

What Would be the ETF Impact?

Beyond NVIDIA, the broader tech and AI sector looks healthy. Hence, it is better to play the semiconductor and AI space with the exchange-traded fund (ETF) form as the ETF approach minimizes the company-specific concentration risks.

Strive U.S. Semiconductor ETF (SHOC Quick QuoteSHOC - Free Report) , VanEck Semiconductor ETF (SMH Quick QuoteSMH - Free Report) , VanEck Fabless Semiconductor ETF (SMHX Quick QuoteSMHX - Free Report) , and iShares Semiconductor ETF (SOXX Quick QuoteSOXX - Free Report) are some of the ETFs that can be played now. With these products, investors can gain access to several semiconductor companies at the same time.