NVDA 10-K & 10-Q changes, risk factors and insider trading

The following risk factors should be considered in addition to the other information in this Annual Report on Form 10-K. The following risks could harm our business, financial condition, results of operations or reputation, which could cause our stock price to decline. Additional risks, trends and uncertainties not presently known to us or that we currently believe are immaterial may also harm our business, financial condition, results of operations or reputation.

•Long manufacturing lead times and uncertain supply and componentcapacity availability, combined with a failure to estimate customer demand accurately has led and could lead to mismatches between supply and demand.

•Product, system security and data breachesprotection andincidents or breaches, as well as cyber-attacks could disrupt our operations and adversely affect our financial condition, stock price and reputation.

•A significant amount of our revenue stems from a limited number of partners and distributors and we have a concentration of sales to customers,customers who purchase directly or indirectly from us, and our revenue could be adversely affected if we lose or are prevented from selling to any of these end customers.

•Increased scrutinyScrutiny regarding our corporate sustainability practices could result in financial, reputational, or operational harm and liability.

•develop or acquiresecure access to new products and technologies through investments in research and development;

We offer enterprise customers NVIDIA DGX Cloud services, which include cloud-based infrastructure, software and services for training and deploying AI models. We have partnered with CSPs to host such software and services in their data centers, and we entered and may continue to enter into multi-year cloud service agreements to support these offerings and our research and development activities. The timing and availability of these cloud services have changed and may continue to shift, impacting our revenue, expenses, and development timelines.timelines, NVIDIAand DGXthese Cloud servicesarrangements may not bedeliver successfulanticipated and will take time, resources, and investment.benefits. We also offer or plan to offer standalone software solutions, including NVIDIA AI Enterprise, NVIDIA Omniverse, NVIDIA DRIVE, and other software products. These new business models or strategies may not be successful, and we may fail to sell any meaningful standalone software or services. We may incur significant costs and may not achieve any significant revenue from these offerings.

Our target markets remain competitive, and competition may intensify with expanding and changing product and service offerings, industry standards, customer and market needs, new entrants and consolidations. Our competitors’ products, services and technologies, including those mentioned above in this Annual Report on Form 10-K, may be cheaper or provide better functionality or features than ours, which has resulted and may in the future result in lower-than-expected selling prices or demand for our products. Some of our competitors operate their own fabrication facilities, and have longer operating histories, larger customer bases, more comprehensive IP portfolios and patent protections, more design wins, and greater financial, sales, marketing and distribution resources than we do. These competitors may be able to acquire market share and/or prevent us from doing so, more effectively identify and capitalize upon opportunities in new markets and end-user trends, more quickly transition their products, and impinge on our ability to procure sufficient

wins, and greater financial, sales, marketing and distribution resources than we do. These competitors may be able to acquire market share and/or prevent us from doing so, more effectively identify and capitalize upon opportunities in new markets and end-user trends, more quickly transition their products, and impinge on our ability to procure sufficient foundry capacity and scarce input materials during a supply-constrained environment, which could harm our business. Some of our customers have in-house expertise and internal development capabilities similar to some of ours and can use or develop their own solutions to replace those we are providing. For example, others may offer cloud-based services that compete with our AI cloud service offerings, and we may not be able to establish market share sufficient to achieve the scale necessary to meet our business objectives. If we are unable to successfully compete in this environment, demand for our products, services and technologies could decreasedecrease, and wewhich may notnegatively establishimpact meaningfulour revenue.business.

Long manufacturing lead times and uncertain supply and componentcapacity availability, combined with a failure to estimate customer demand accurately, has led and could lead to mismatches between supply and demand.

If we overestimate demand, or if customers cancel or defer orders or choose to purchase from our competitors, we may not be able to utilize on-hand inventory or reduce purchase commitments accordingly. We have had to reduce average selling prices, including due to our channel pricing programs, increase prices for certain of our products as a result of our suppliers’ increase in prices, write down our inventory, incur cancellation penalties, and record impairments, and may have to do so in the future. TheseThe impactsimpact of these risks would be amplified by our non-cancellable and non-returnable purchase orders placed in advance of our historical lead times and could be exacerbated if we need to make changes to the design of future products. TheThese riskrisks of these impacts hashave increased and may continue to increase as our purchase obligations and prepaids have grown and are expected to continue to grow and become a greater portion of our total supply. All of these factors may negatively impact our gross margins and financial results.

•government actions or changes in governmental policies, such as export controls, increased restrictions on gaming usage, or tariffs; and

•our customers'customers’ and partners’ ability to investsecure incapital AIand infrastructure.energy and to build complex datacenter infrastructure timely; and

Challenges in estimating demand could become more pronounced or volatile in the future on both a global and regional basis. Extended lead times may occur if we experience other supply constraints caused by natural disasters, pandemics or other events. InGeopolitical addition,tensions geopoliticalin tensions, such as those involving Taiwan and China, which comprise a significant portion of our revenue andregions where we haverely on suppliers, contract manufacturers, and assembly partners whothat are critical to our supply continuity, could have a material adverse impact on us. Publicly announced intentions by governments or other companies to purchase our products can further complicate our demand estimates, as such announcements are often non-binding and may not result in committed volumes.

We continue to increase our supply and capacity purchases with existing and new suppliers to support our demand projections and increasing complexity of our data center products. WithWe theseexpect additions,supply weconstraints to be a headwind to Gaming in the first quarter of fiscal year 2027 and beyond. We have also entered and may continue to enter into prepaid manufacturing and capacity agreements to supply both current and future products. The increased purchase volumes and integration of new suppliers and contract manufacturers into our supply chain creates more complexity in managing multiple suppliers with variations in production planning, execution and logistics. Our expanding product portfolio and varying component compatibility and quality may lead to increased inventory levels. We have incurred and may in the future incur inventory provisions or impairments if our inventory or supply or capacity commitments exceed demand for our products or demand declines.

Product transitions are complex and we often ship both new and prior architecture products simultaneously as our channel partners prepare to ship and support new products. We are generally in various stages of transitioning the architectures of our Data Center, Gaming, Professional Visualization, and Automotive products. The computing industry is experiencing a broader and faster launch cadence of accelerated computing platforms to meet a growing and diverse set of AI opportunities. We have introduced a new product and architecture cadence of our Data Center solutions where we seek to complete new computing solutions each year and provide a greater variety of Data Center offerings. The increased frequency of these transitions and the larger number of products and product configurations may magnify the challenges associated with managing our supply and demand which may further create volatility in our revenue. Qualification time for new products, customers anticipating product transitions, and channel partners reducing channel inventory of prior architectures ahead of new product introductions can reduce, or create volatility in, our revenue. Customers may delay adopting new architectures if their data center infrastructure is not ready, which could affect the timing of our revenue. We have experienced and may in the future experience reduced demand for current generation architectures when customers anticipate transitions, and we may be unable to sell multiple product architectures at the same time for current and future architecture transitions. Our financial results have been and may in the future be negatively impacted if we are unable to execute our architectural transitions as planned for any reason. The increased frequency and complexity of newly introduced products could result in unanticipated quality or production issues that could increase the magnitude of inventory provisions, warranty, or other costs or result in product delays. For example, our gross margins in the second quarter of fiscal year 2025 were negatively impacted by inventory provisions for low-yielding Blackwell material.

We incur significant engineering development resources for new products, and changes to our product roadmap may impact our ability to develop other products or adequately manage our supply chain cost. Customers may delay purchasing existing products as we increase the frequency of new products or may not be able to adopt our new products as fast as forecasted, both impacting the timing of our revenue and supply chain cost. While we have managed prior product transitions and have sold multiple product architectures at the same time, these transitions are difficult, may impair our ability to predict demand and impact our supply mix, and may cause us to incur additional costs.

Demand estimates for our products, applications, and services can be incorrect, which may create volatility in our revenue or supply levels. We may not be able to generate significant revenue from them. Because our products may be used in multiple use cases and applications, it is difficult to estimate with any reasonable degree of precision the impact of generativeaccelerated computing and AI models on our reported revenue or forecasted demand.

The use of our GPUs for new, mercurial, or trendy applications, has impacted and can impact in the future, demand for our products, including by leading to inconsistent spikes and drops in demand. For example, several years ago, our Gaming GPUs began to be used for mining digital currencies, such as Ethereum. It is difficult for us to estimate with any reasonable degree of precision the past or current impact of cryptocurrency mining, or forecast the future impact of cryptocurrency mining, on demand for our products. Volatility in the cryptocurrency market, including new compute technologies, price changes in cryptocurrencies, government cryptocurrency policies and regulations, new cryptocurrency standards and changes in the method of verifying blockchain transactions, has impacted and can in the future impact cryptocurrency mining and demand for our products and can further impact our ability to estimate demand for our products. Changes to cryptocurrency standards and processes including, but not limited to, the Ethereum 2.0 merge in 2022, have reduced and may in the future decrease the usage of GPUs for Ethereum mining. This has created and may in the future create increased aftermarket sales of our GPUs, which could negatively impact retail prices for our GPUs and reduce demand for our new GPUs. In general, our new products or previously sold products may be resold online or on the unauthorized “gray market,” which also makes demand forecasting difficult. Gray market products and reseller marketplaces compete with our new products and distribution channels. Our inability to accurately predict our demand that arises from new use cases may create volatility in our revenue.

•lack of guaranteed supply of wafer, componentcomponents and capacity;

Undiscovered vulnerabilities in our products or services could result in loss of data or intangible property, or expose our customers to unscrupulous third parties who develop and deploy malicious software programs that could attack our products or services. Defects or failure of our offerings to perform to specifications could lead to substantial damage to the products in which our offerings have been integrated by OEMs, ODMs, AIB manufacturers, automotive manufacturers, and tier 1 automotive suppliers, and to the user of such end product. AnySuch suchdefects defecthave in the past had an adverse effect on our cost and supply of components and finished goods and may in the future cause us to incur significant warranty, support, and repair or replacement costs as part of a product recall or otherwise, write-off the value of related inventory, and divert the attention of our engineering and management personnel from our product development efforts to find and correct the issue. Our efforts to remedy these issues may not be timely or satisfactory to our customers. An error or defect in new products, releases or related software drivers after commencement of commercial shipments could result in failure to achieve market acceptance, loss of design wins, temporary or permanent withdrawal from a product or market and harm to our relationships with existing and prospective customers and partners and consumers’ perceptions of our brand, which would in turn negatively impact our business operations, gross margin, revenue and/or financial results. We may be required to reimburse our customers, partners or consumers, including for costs to repair or replace products in the field or in connection with indemnification obligations, or pay fines imposed by regulatory agencies.

For example, in fiscal year 2023, a defect was identified in a third-party component embedded in certain Data Center products. This defect has had, and other defects may in the future have, an adverse effect on our cost and supply of components and finished goods. These costs could be significant in future periods. We recorded a net warranty liability during fiscal year 2023 primarily in connection with this defect. While we believe we have accurately recorded for warranty obligations, we may need to record additional amounts in the future if our estimate proves to be incorrect. In general, if a product liability claim regarding any of our products is brought against us, even if the alleged damage is due to the actions or inactions of a third party, such as within our supply chain, the cost of defending the claim could be significant and would divert the efforts of our technical and management personnel and harm our business. Further, our business liability insurance may be inadequate or future coverage may be unavailable on acceptable terms, which could adversely impact our financial results.

•reduced profitability of customers, which may cause them to scale back operations, exit businesses, file for bankruptcy protection and potentially cease operations, or lead to mergers, consolidations or strategic alliances among other companies, which could adversely affect our ability to compete effectively; and

•increased credit and collectability risks, higher borrowing costs or reduced availability of capital markets, reduced liquidity, adverse impacts on our customers and suppliers, failures of counterparties, including financial institutionssuppliers; and insurers, asset impairments, and declines in the value of our financial instruments.

Additionally, we maintain an investmenta portfolio of liquid investments for cash management purposes, including various holdings, types, and maturities. These investments are subject to general credit, liquidity, market and interest rate risks, which may be exacerbated by market downturns or events that affect global financial markets, as described above. A majority of our investment portfolio comprises USG securities. A decline in global financial markets for long periods or a downgrade of the USG credit rating due to an actual or threatened default on government debt could result in higher interest rates, a decline in the value of the U.S. dollar, reduced market liquidity or other adverse conditions. These factors could cause an unrealized or realized loss position in our investments or require us to record impairment charges.

and during times of war or other major conflicts, we and the third parties we rely upon may be subject to a heightened risk of cyber-attacks that could materially disrupt our ability to provide services and products. We may also face cybersecurity threats due to error or intentional misconduct by employees, contractors or other third-party service providers. Certain aspects of effective cybersecurity are dependent upon our employees, contractors and/or other third-party service providers safeguarding our sensitive information and adhering to our security policies and access control mechanisms. We have in the past experienced, and may in the future experience, security incidents arising from a failure to properly handle sensitive information or adhere to our security policies and access control mechanisms, including, for example, employees posting company data on third-party websites without permission, and, although no such events have had a material adverse effect on our business, there can be no assurance that an insider threat or error will not result in an incident that is material to us or lead to negative publicity. Furthermore, we rely on products and services provided by third-party suppliers to operate certain critical business systems, including without limitation, cloud-based infrastructure, encryption and authentication technology, employee email and other functions, which exposes us to supply-chain attacks or other business disruptions. We cannot guarantee that third parties and infrastructure in our supply chain or our partners’ supply chains have not been compromised or that they do not contain exploitable vulnerabilities, defects or bugs that could result in a breach of or disruption to our information technology systems, including our products and services, or the third-party information technology systems that support our services. We have incorporated third-party data into some of our AI models and used open-source datasets to train our models and may continue to do so. These datasets may be flawed, insufficient, or contain certain biased information, and may otherwise decrease resilience to security incidents that may compromise the integrity of our AI outputs, leading to potential reputational damage, regulatory scrutiny, or adverse impacts on the performance and reliability of our products, which could, in turn, affect our partners' operations, customer trust, and our revenue. We may have limited insight into the data privacy or security practices of third-party suppliers, including for our AI algorithms. Our ability to monitor these third parties’ information security practices is limited, and they may not have adequate information security measures in place. In addition, if one of our third-party suppliers suffers a security incident (which has happened in the past and may happen in the future), our response may be limited or more difficult because we may not have direct access to their systems, logs and other information related to the security incident. Additionally, we are incorporated into the supply chain of a large number of entities worldwide and, as a result, if our products or services are compromised, a significant number of our customers and their data could be affected, which could result in potential liability and harm our business.

actions, epidemics or pandemics, abrupt regulatory changes, and other natural or man-made disasters and catastrophic events. Our corporate headquarters, a large portion of our current data center capacity, and a portion of our research and development activities are located in California, and other critical business operations, finished goods inventory and some of our suppliers are located in Asia, making our operations vulnerable to natural disasters such as earthquakes, wildfires or other business disruptions occurring in these geographical areas. Catastrophic events can also have an impact on third-party vendors who provide us critical infrastructure services for IT and research and development systems and personnel. Geopolitical and domestic political developments and other events beyond our control can increase economic volatility globally. Political instability, changes in government or adverse political developments in or around any of the major countries in which we do business may harm our business, financial condition, and results of operations. Worldwide geopolitical tensions and conflicts, including but not limited to China, Hong Kong, Israel, Korea and Taiwan where the manufacture of our product components and final assembly of our products are concentrated may result in changing regulatory requirements, and other disruptions that could impact our operations and operating strategies, product demand, access to global markets, hiring, and profitability. For example, other countries have restricted and may continue in the future to restrict business with the State of Israel, where we have engineering, sales support operations and manufacturing, and companies with Israeli operations, including by economic boycotts. Our operations could be harmed and our costs could increase if manufacturing, logistics, or other operations are disrupted for any reason, including natural disasters, high heat events, water shortages, power shortages, information technology system failures or cyber-attacks, military actions or economic, and business, labor, environmental, public health, or political issues. The ultimate impact on us, our third-party foundries and other suppliers of being located and consolidated in certain geographical areas is unknown. In the event a disaster, war, or catastrophic event affects us, the third-party systems on which we rely, or our customers, our business could be harmed as a result of declines in revenue, increases in expenses, and substantial expenditures and time spent to fully resume operations. Our business continuity and disaster recovery planning may not be sufficient for all eventualities. All of these risks and conditions could materially adversely affect our future sales and operating results.

We are monitoring the impact of the geopolitical conflict in and around Israel on our operations, including the health and safety of our approximately 4,7006,000 employees in the region who primarily support the research and development, operations, and sales and marketing of our networking products. SomeWe have experienced periods where some of our employees in the region have been on active military duty for an extended period and may continue to be absent,period, which maycaused causelimited disruption to our product development or operations. We have not experienced significant impact or expense to our business; however, if the conflict is further extended or expanded, it could impact future product development, operations, and revenue or create other uncertainty for our business.

Our business and those of our suppliers and customers may also beis subject to climate-relatedsustainability-related laws, regulations and lawsuits. New or proposed regulations relating to carbon taxes, fuel or energy taxes, pollution limits, sustainability-related disclosure and governance and supply chain governance could result in greater direct costs, including costs associated with changes to manufacturing processes or the procurement of raw materials used in manufacturing processes, increased capital expenditures to improve facilities and equipment, higher compliance and energy costs to reduce emissions, other compliance costs, and greater indirect costs resulting from our customers and/or suppliers incurring additional compliance costs that are passed on to us. These costs and restrictions could harm our business and results of operations by increasing our expenses or requiring us to alter our operations and product design activities.

We acquire and invest in businesses that offer products, services and technologies that we believe will help expand or enhance our strategic objectives. Acquisitions or investments involve significant challenges and risks and could impair our ability to grow our business, develop new products or sell our products and ultimately could have a negative impact on our financial results. If we pursue a particular transaction, we may limit our ability to enter into other transactions that could help us achieve our other strategic objectives. If we are unable to timely complete acquisitions, including due to delays and challenges in obtaining regulatory approvals, we may be unable to pursue other transactions, we may not be able to retain critical talent from the target company, technology may evolve and make the acquisition less attractive, and other changes can take place, which could reduce the anticipated benefits of the transaction and negatively impact our business. Regulators could also impose conditions that reduce the ultimate value of our acquisitions. In addition, to the extent that our perceived ability to consummate acquisitions has beenis harmed, future acquisitions may be more difficult, complex or expensive. Further, our investments in publicly traded companies could create volatility in our results and may generate losses up to the value of the investment. In addition, we have invested and may continue to invest in private companies to further our strategic objectives and to support certain key business initiatives. These companies can include early-stage companies still defining their strategic direction. Many of the instruments in which we invest are non-marketable and illiquid at the time of our initial investment, and we are not always able to achieve a return. To the extent any of the companies in which we invest are not successful, we could recognize an impairment and/or lose all or part of our investment. Our investment portfolio contains industry sector concentration risks, and a decline in any one or multiple industry sectors could increase our impairment losses.

Additional risks relatedrelating to acquisitions include, but are not limited to:

We have experienced periods where we receive a significant amount of our revenue from a limited number of customers, and this trend may continue. For fiscal year 2026, sales to one direct customer represented 22% of total revenue and sales to another direct customer represented 14% of total revenue, all of which were primarily attributable to the Compute & Networking segment. With several of these partners, we are selling multiple products and systems in our portfolio through their channels. Our operating results depend on sales to our partner network, as well as the ability of these partners to sell products that incorporate our technologies. We have a small number of partners that are involved in system integration with our key customers. As our system design becomes increasingly complex, system integrators may be unable to meet specifications of our key customers. Changes in our partners' or customers' business models or their ownership can reduce the number of partners available to us and harm our ability to sell our advanced data center systems to customers. In the future, these partners may decide to purchase fewer products, not to incorporate our products into their ecosystem, or to alter their purchasing patterns in some other way. Because most of our sales are made on a purchase order basis, our customers can generally cancel, change, or delay product purchase commitments with little notice to us and without penalty. Our partners or customers may develop their own solutions; our customers may purchase products from our competitors; and our partners may discontinue sales or lose market share in the markets for which they purchase our products, all of which may alter partners’ or customers’ purchasing patterns. Many of our indirect customers often do not purchase directly from us but through multiple OEMs, ODMs, system integrators, distributors, and other channel partners. ForWe fiscalgenerate yeara 2025,significant anamount of our revenue from a limited number of indirect customer which primarily purchases our products through system integratorscustomers, and distributors,we includingestimate throughsome Customerindividually B, is estimated to representrepresenting 10% or more of totalour revenue, attributable to the Compute & Networking segment.revenue. If end demand increases or our finished goods supply availability is concentrated near a quarter end, the system integrators, distributors, and channel partners may have limited ability to increase their credit, which could impact the timing and amount of our revenue. The loss of any of our large customers, a significant reduction in purchases by them, our inability to sell to a customer due to U.S. or other countries’ trade restrictions, or any difficulties in collecting accounts receivable would likely harm our financial condition and results of operations.

To remain competitive and successfully execute our business strategy, we must attract, retain, and motivate our executives and key employees, as well as recruit and develop exceptional and diverse talent. However, labor is subject to external factors that are beyond our control, including our industry’s increasingly highly competitive market for skilled workers and leaders, and workforce participation rates. Changes in immigration and work permit regulations, or in their administration or interpretation, could impair our ability to attractattract, employ and retain qualified employees. Competition for talent drives up costs in the form of cash and stock-based compensation. In times of stock price volatility, as we have experienced in the past and may experience in the future, the retentive value of our stock-based compensation may decrease. Additionally, we are highly dependent on the services of our longstanding executive team. Failure to ensure effective succession planning, transfer of knowledge, and smooth transitions involving executives and key employees could hinder our strategic planning, execution, and long-term success.

We are subject to laws and regulations domestically and worldwide, affecting our operations in areas including, but not limited to, IP ownership and infringement; taxes; import and export requirements and tariffs; anti-corruption, including the Foreign Corrupt Practices Act; business acquisitions; foreign exchange controls and cash repatriation restrictions; foreign ownership and investment; data privacy requirements; competition and antitrust; advertising; employment; product regulations; cybersecurity; environmental, health, and safety requirements; the responsible use of AI; sustainability; cryptocurrency; and consumer laws. Compliance with such requirements can be onerous and expensive, could impact our competitive position, and may negatively impact our business operations and ability to manufacture and ship our products. There can be no assurance that our employees, contractors, suppliers, customers or agents will not violate applicable laws or the policies, controls, and procedures that we have designed to help ensure compliance with such laws, and violations could result in fines, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business, and damage to our reputation. Changes to the laws, rules and regulations to which we are subject, or changes to their interpretation and enforcement, could lead to materially greater compliance and other costs, and/or further restrictions on our ability to manufacture and supply our products and operate our business. For example, we may face increased compliance costs as a result of changes or increases in antitrust legislation, regulation, administrative rule making, increased focus from regulators on cybersecurity vulnerabilities and risks. Our position in markets relating to AI has led to increased interest in our business from regulators worldwide, including the European Union, the United States, the United Kingdom, South Korea and China. For example, the French Competition Authority collected information from us regarding our business and competition in the graphics card and cloud service provider market as part of an ongoing inquiry into competition in those markets. We have also received, and continue to receive, broad requests for information from competition regulators in the European Union, the United States, the United Kingdom, China, and South Korea regarding our sales of GPUs and other NVIDIA products, our efforts to allocate supply, foundation models and our investments, partnerships and other agreements with companies developing foundation models, the markets in which we compete and our competition, our strategies, roadmaps, and efforts to develop, market, and sell hardware, software, and system solutions, and our agreements with customers, suppliers, and partners. We expect to receive additional requests for information in the future. Such requests may be expensive and burdensome and could negatively impact our business and our relationships with customers, suppliers, and partners.

Governments and regulators are also considering, and in certain cases, have imposed restrictions on the hardware, software, and systems used to develop frontier foundation models and generative AI. For example, the EU AI Act became effective on August 1, 2024 and will be fully applicable after a two-year transitional period. The EU AI Act may impact our ability to train, deploy, or release AI models in the EU. Several states are considering enacting or have already enacted regulations concerning AI technologies, with new state laws that took effect on January 1, 2026, which may impact our ability to train, deploy, or release AI models, and increase our compliance costs. Restrictions under these and any other regulations, if implemented, could increase the costs and burdens to us and our customers, delay or halt deployment of new systems using our products, and reduce the number of new entrants and customers, negatively impacting our business and financial results. Revisions to laws or regulations or their interpretation and enforcement could also result in increased taxation, trade sanctions, the imposition of or increase to import duties or tariffs, restrictions and controls on imports or exports, or other retaliatory actions, which could have an adverse effect on our business plans or impact the timing of our shipments. Additionally, changes in the public perception of governments in the regions where we operate or plan to operate could negatively impact our business and results of operations.

Government actions, including trade protection and national and economic security policies of U.S. and foreign government bodies, such as tariffs, import or export regulations, including deemed export restrictions and restrictions on the activities of U.S. persons, trade and economic sanctions, decrees, quotas or other trade barriers and restrictions could affect our ability to ship products, provide services to our customers and employees, do business without an export license with entities on the U.S. Department of Commerce’s U.S. Entity List or other USG restricted parties lists (which is expected to change from time to time), and generally fulfill our contractual obligations and have a material adverse effect on our business. If we were ever found to have violated export control laws or sanctions of the U.S. or similar applicable non-U.S. laws, even if the violation occurred without our knowledge, we may be subject to various penalties available under the laws, any of which could have a material and adverse impact on our business, operating results and financial condition.

Such restrictions could include additional unilateral or multilateral export controls on certain products or technology, including but not limited to AI technologies. As geopolitical tensions have increased, semiconductors associated with AI, including GPUs and related products, are increasingly the focus of export control restrictions proposed by stakeholders in the U.S. and its allies. The United States has imposed unilateral worldwide controls restricting GPUs and associated products, and it is likely that additional unilateral or multilateral controls will be adopted. Such controls have been and may again be very broad in scope and application, prohibit us from exporting our products to any or all customers in one or more markets, including but not limited to China and over 150 countries designated “Tier 2” by the January 2025 AI Diffusion IFR, and could negatively impact our manufacturing, testing and warehousing locations and options, or could impose other conditions that limit our ability to serve demand abroad and could negatively and materially impact our business, revenue and financial results. Export controls and other restrictions targeting GPUs and semiconductors associated with AI, which have been imposed and are increasingly likely to be furthermore tightened,restrictive, would further restrictlimit our ability to export our technology, products, or services even though competitors may not be subject to similar restrictions,services, creating a competitive disadvantage for us and negatively impacting our business and financial results. Export controls targeting GPUs and semiconductors associated with AI have subjected and may in the future subject downstream users of our products to additional restrictions on the use, resale, repair, or transfer of our products, negatively impacting our business and financial results. Controls could negatively impact our cost and/or ability to provide services such as NVIDIA AI cloud services and could impact the cost and/or ability for our CSPs and customers to provide services to their end customers, even outside China.

NVIDIA pioneered accelerated computing to help solve the most challenging computational problems. Since our original focus on PC graphics, we have expanded to several other large and important computationally intensive fields. Fueled by the sustained demand for exceptional 3D graphics and the scale of the gaming market, NVIDIA has leveraged its GPU architecture to create platforms for scientific computing, AI, data science, AV,autonomous vehicles, robotics, and digital twin applications. NVIDIA is now a data center scale AI infrastructure company reshaping all industries.

Revenue growth in fiscal year 20252026 was driven by data center compute and networking platforms for accelerated computing and AI solutions. DemandOur forBlackwell architectures represented the majority of our HopperData architectureCenter drove our significant growth for the full year. We began shipping production systems of the Blackwell architecture in the fourth quarter of fiscal year 2025.revenue.

Macroeconomic factors, including tariffs, inflation, interest rate changes, capital market volatility, global supply chain constraints, tariffs, and global economic and geopolitical developments, may have direct and indirect impacts on our results of operations, particularly demand for our products. While difficult to isolate and quantify, these macroeconomic factors impact our supply chain and manufacturing costs, employee wages, costs for capital equipmentequipment, andthe value of our investments.investments, revenue and competitive position. Our product and solution pricing generally does not fluctuate with short-term changes in our costs. Within our supply chain, we continuously manage product availability and costs with our vendors.

GamingData Center revenue for fiscal year 20252026 was up 9%68% from a year ago,ago. The strong year-on-year growth was driven by salesthe ofmajor ourplatform GeForceshifts RTX– 40accelerated Seriescomputing GPUs.and AI.

AutomotiveGaming revenue for fiscal year 20252026 was up 55%41% from a year ago, driven by salesstrong Blackwell demand. We expect supply constraints to be a headwind to Gaming in the first quarter of ourfiscal self-driving2027 platforms.and beyond.

Operating expenses for fiscal year 20252026 were up 45%41% from a year ago, driven by higher compensation and benefits expenses due to employee growth and compensation increases, and engineering development, compute and infrastructure costs for new product introductions.costs.

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, cost of revenue, expenses and related disclosure of contingencies. Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and could have a material impact on our financial condition or results of operations. We have critical accounting estimates in the areas of inventories, income taxes, non-marketable equity securities, and revenue recognition. Refer to Note 1 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for a summary of significant accounting policies.

We charge cost of sales for inventory provisions to write-down our inventory to the lower of cost or net realizable value or for obsolete or excess inventory, and for excess product purchase commitments. Most of our inventory provisions relate to excess quantities of products or components, based on our inventory levels and future product purchase commitments compared to assumptions about future demand and market conditions, which requires management judgment.

We account for customer programs, which involve rebates and marketing development funds, or MDFs, as a reduction in revenue and accrue for such programs based on the amount we expect to be claimed by customers. Certain customer programs include distributor price incentives or other channel programs for specific products and customer classes which require judgementjudgment as to whether the applicable incentives will be attained. Estimates for customer program accruals include a combination of historical attainment and claim rates and may be adjusted based on relevant internal and external factors.

Our contracts may contain more than one performance obligation. JudgementJudgment is required in determining whether each performance obligation within a customer contract is distinct. Except for License and Development Arrangements, NVIDIA products and services function on a standalone basis and do not require a significant amount of integration or interdependency. Therefore, multiple performance obligations contained within a customer contract are considered distinct and are not combined for revenue recognition purposes.

We allocate the total transaction price to each distinct performance obligation in an arrangement with multiple performance obligations on a relative standalone selling price basis. In certainmost cases, we can establish standalone selling price based on directly observable prices of products or services sold separately in comparable circumstances to similar customers. If standalone selling price is not directly observable, such as when we do not sell a product or service separately, we determine standalone selling price based on market data and other observable inputs.

Compute & Networking revenue – The year over year increase was duedriven toby strongthe demandmajor forplatform ourshifts – accelerated computing and AI solutions.AI. Revenue from Data Center computing grew 162%59% driven primarily by demand for our HopperBlackwell computing platform used for large language models, recommendation engines, and generative AI applications.platform. Revenue from Data Center networking grew 51%142% driven by Ethernetthe introduction and continued ramp of NVLink compute fabric for AIGB200 revenue,and whichGB300 includessystems Spectrum-Xand end-to-endthe ethernetgrowth platform.of Ethernet and InfiniBand platforms.

Graphics revenue – The year over year increase was driven by sales of our GeForceBlackwell RTX 40 Series GPUs.architecture.

Reportable segment operating income – The year over year increase in Compute & Networking segment operating income was driven by growth in revenue.revenue, partially offset by a $4.5 billion charge associated with H20 excess inventory and purchase obligations in the first quarter of fiscal year 2026. The year over year decreaseincrease in Graphics segment operating income was driven by an increase of 44% in segment operating expenses, partially offset bythe growth in revenue.

We refer to customers who purchase products directly from NVIDIA as direct customers, such as AIBs, distributors, ODMs, OEMs, CSPs, AI model makers, and system integrators. WeCertain have certaindirect customers that may purchase products directly from NVIDIA and may use either internal resources or third-party system integrators to complete their build. We alsorefer haveto indirect customers,customers as those who purchase products through our direct customers; indirect customers include CSPs, consumerNeocloud internetbuilders, companies,AI model makers, enterprises, and public sector entities. Our revenue is concentrated among a limited number of direct and indirect customers and this trend may continue.

Direct Customers – SalesFor fiscal year 2026, sales to one direct customers whichcustomer represented 10%22% orof moretotal revenue and sales to another direct customer represented 14% of total revenue, all of which were primarily attributable to the Compute & Networking segment, are presented in the following table:segment.

Other than the risk factors listed below, there have been no material changes from the risk factors previously described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 25, 2026 and Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarter ended April 26, 2026.

Purchasing or owning NVIDIA common stocksecurities involves investment risks including, but not limited to, the risks described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 25, 2026, Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarter ended April 26, 2026, and below. Any one of those risks could harm our business, financial condition and results of operations or reputation, which could cause our stock price to decline. Additional risks, trends and uncertainties not presently known to us or that we currently believe are immaterial may also harm our business, financial condition, results of operations or reputation.

We are subject to laws and regulations domestically and worldwide, affecting our operations in areas including, but not limited to, IP ownership and infringement; taxes; import and export requirements and tariffs; anti-corruption, including the Foreign Corrupt Practices Act; business acquisitions; foreign exchange controls and cash repatriation restrictions; foreign ownership and investment; data privacy requirements; competition and antitrust; investing; advertising; employment; product regulations; cybersecurity; environmental, health, and safety requirements; the responsible use of AI; sustainability; cryptocurrency; and consumer laws. Compliance with such requirements can be onerous and expensive, could impact our competitive position, and may negatively impact our business operations and ability to manufacture and ship our products. There can be no assurance that our employees, contractors, suppliers, customers or agents will not violate applicable laws or the policies, controls, and procedures that we have designed to help ensure compliance with such laws, and violations could result in fines, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business, and damage to our reputation. Changes to the laws, rules and regulations to which we are subject, or changes to their interpretation and enforcement, could lead to materially greater compliance and other costs, and/or further restrictions on our ability to manufacture and supply our products and operate our business. For example, we may face increased compliance costs as a result of changes or increases in antitrust legislation, regulation, administrative rule making, increased focus from regulators on cybersecurity vulnerabilities and risks. Our positionbusiness inis markets relating to AI has led tofacing increased interest in our business from regulators worldwide, including the European Union, the United States, the United Kingdom, South Korea, Japan, and China. For example, the French Competition Authority collectedis informationquestioning fromwhether usgaming regarding our businessGPUs and competitiondata center GPUs are separate product categories, an inquiry that may impact the export controls applicable to gaming products sold in the graphics cardFrance and CSP market as part of an ongoing inquiry into competition in those markets.Europe. We have also received, and continue to receive, broad requests for information from competition regulators in the European Union, the United States, the United Kingdom, China, and South Korea regarding our sales of GPUs and other NVIDIA products, our efforts to allocate supply, foundation models and our investments, partnerships and other agreements with companies developing foundation models, the markets in which we compete and our competition, our strategies, roadmaps, and efforts to develop, market, and sell hardware, software, and system solutions, and our agreements with customers, suppliers, and partners. We expect to receive additional requests for information in the future. Such requests have been and are likely to be expensive and burdensome and could negatively impact our business and our relationships with customers, suppliers, and partners.

Governments and regulators are also considering, and in certain cases, have imposed restrictions on the hardware, software, and systems used to develop frontier foundation models and generative AI. For example, the EU AI Act became effective on August 1, 2024 and will be fully applicable after a two-yearmulti-year transitional period. The EU AI Act may impact our ability to train, deploy, or release AI models in the EU. Several states are considering enacting or have already enacted regulations concerning AI technologies, with new state laws that took effect on January 1, 2026, which may impact our ability to train, deploy, or release AI models,models and systems, including those capable of autonomous action, and increase our compliance costs. Restrictions under these and any other regulations, if implemented, could increase the costs and burdens to us and our customers, delay or halt deployment of new systems using our products, and reduce the number of new entrants and customers, negatively impacting our business and financial results. Revisions to laws or regulations or their interpretation and enforcement could also result in increased taxation, trade sanctions, the imposition of or increase to import duties or tariffs, restrictions and controls on imports or exports, or other retaliatory actions, which could have an adverse effect on our business plans or impact the timing of our shipments. Additionally, changes in the public perception of governments in the regions where we operate or plan to operate could negatively impact our business and results of operations.

Government actions, including trade protection and national and economic security policies of U.S. and foreign government bodies, such as tariffs, import or export regulations, including deemed export restrictions and restrictions on the activities of U.S. persons, trade and economic sanctions, decrees, quotas or other trade barriers and restrictions could affect our ability to ship products, provide services to our customers and employees, do business without an export license with entities on the U.S. Department of Commerce’s U.S. Entity List or other USG restricted parties lists (which is expected to change from time to time), and generally fulfill our contractual obligations and have a material adverse effect on our business. If we were ever found to have violated export control laws or sanctions of the U.S. or similar applicable non-U.S. laws, even if the violation occurred without our knowledge, we may be subject to various penalties available under the laws, any of which could have a material and adverse impact on our business, operating results and financial condition.

Export controls have and could in the future disrupt our supply chain and distribution channels, negatively impacting our ability to serve demand, including in markets outside China and for our non-data center products. The possibility of additional export controls has negatively impacted and may in the future negatively impact demand for our products, benefiting competitors that offer alternatives less likely to be restricted by further controls. Repeated changes in the export control rules are likely to impose compliance burdens on our business and our customers, negatively and materially impacting our business. Complex U.S. export rules have already and are likely in the future to result in inquiries and investigations from foreign governments regarding sales of our products, subjecting our business, employees, and customers to increased burdens, disruption and risk.

Increasing use of economic sanctions and export controls has impacted and may in the future impact demand for our products or services, negatively impacting our business and financial results. Reduced demand due to export controls has and could in the future lead to excess inventory or cause us to incur related supply charges. Additional unilateral or multilateral controls are also likely to include deemed export control limitations that negatively impact the ability of our research and development teams to execute our roadmap or other objectives in a timely manner. Additional export restrictions may not only impact our ability to serve overseas markets, but also provoke responses from foreign governments, including China, that negatively impact our supply chain or our ability to provide our products and services to customers in all markets worldwide, which could also substantially reduce our revenue. Regulators in China have inquired about our sales and efforts to supply the China market and our fulfillment of the commitments we entered into at the close of our Mellanox acquisition. On September 15, 2025, China’s antitrust regulators published their preliminary finding that our compliance with applicable U.S. export controls, which required us to offer degraded products to the Chinese market, discriminated unfairly against customers in the China market and therefore violated the terms of China’s approval of our Mellanox acquisition. If regulators conclude that we have failed to fulfill the terms of our Mellanox acquisition or we have violated any applicable law in China, we could be subject to financial penalties, restrictions on our ability to conduct our business, restrictions or other orders regarding our networking business, products, and services, or otherwise impact our operations in China, any of which could have a material and adverse impact on our business, operating results and financial condition.

In October 2023, the USG announced new and updated licensing requirements for exports to China and Country Groups D:1, D:4, and D:5 (including but not limited to, Saudi Arabia, the United Arab Emirates, and Vietnam, but excluding Israel) of our products exceeding certain performance thresholds, including, but not limited to, the A100, A800, H100, H800, L4, L40, L40SL40S, RTX 4090, GB200 NVL72, and B200. The licensing requirements also apply to the export of products exceeding certain performance thresholds to a party headquartered in, or with an ultimate parent headquartered in, Country Group D5, including China.

Beginning in August 2025, the USG granted licenses that would allowhave allowed us to ship certain H20 products to certain China-based customers.customers, USGbut officialssuch expressedsales anwere expectationrestricted thatby the USGPRC willgovernment, receiveand 15%we orwere moreunable ofto the revenue generated from licensed sales ofsell our products,H20 but the USG did not publish a regulation codifying such requirement.inventory.

Beginning in February 2026, the USG granted licenses that would allow us to ship small amounts of H200 products to specific China-based customers.customers, Tobut date,such sales were restricted by the PRC government, and we have notbeen generatedunable anyto revenuesell all the products for which we have licenses. During the first half of fiscal year 2027, we incurred a $0.4 billion charge associated with H200 for excess inventory and purchase obligations, as the demand for H200 products diminished. After incurring that charge, we have made a fraction of the allowed shipments under the USG’s H200 licensing program,program. andThose doshipments notaccount yetfor knowless whetherthan any1% importsof willData beCenter allowedrevenue intoin China.our most recent quarter. The licenselicenses requiresrequire that the H200s go through an inspection process in the United States prior to any shipment to the customer. As a result, any H200H200s shipped under the new licensing program will beare subject to a 25% tariff upon importation into the United States. We have been unable to pass along any of the tariff to our customers, and do not anticipate doing so in the event we are able to sell licensed products into the China market.

The export controls applicable to China are complex and address a variety of parameters, including the total processing performance of a chip, the “performance density” of a chip, the interconnect bandwidth of a chip, and the memory bandwidth of a chip. Under the current rules and geopolitical landscape, we are unable to create and deliver a competitive product for wide distribution in China’s data center market thatwith receivesthe approval from both the USG and the Chinese government. As of the end of the firstsecond quarter of fiscal year 2027, while we were able to ship uncontrolled products to China, such as gaming and workstation GPUs, we were effectively foreclosed from competing in China'sChina’s data center computing/compute market, and our effective foreclosure from the China market helped our competitors build larger developer and customer ecosystems to challenge us worldwide. Unless we are able to return with a data center system that meets the approval of both the USG and the Chinese government, our lost opportunity and the benefit to our competitors will have a material and adverse impact on our business, operating results, and financial condition.

Open-source foundation models are rapidly growing in popularity with developers worldwide. The demand for open-source foundation models and applications promotes use of our products worldwide. Any regulatory control or other restriction that limits our ability to provide products and services that support third-party applications and models, including applications built on foundation models originating in China such as DeepSeek, Qwen, or KIMMI,Kimi, could have a material impact on our business, operating results, and financial condition.

Export controls have and are likely in the future to have a disproportionate impact on NVIDIA and may disadvantage us against certain of our competitors that sell chips that are outside the scope of such control. Export controls have already and may in the future encourage customers outside China and other impacted regions to “design-out” certain U.S. semiconductors from their products to reduce the compliance burden and risk, and to ensure that they are able to serve markets worldwide. Export controls have already encouraged and may in the future encourage overseas governments to request that our customers purchase from our competitors rather than NVIDIA or other U.S. firms, harming our business, market position, and financial results.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the risk factors set forth in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 25, 2026 and Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q and our Condensed Consolidated Financial Statements and related Notes thereto, as well as other cautionary statements and risks described elsewhere in this Quarterly Report on Form 10-Q and our other filings with the SEC, before deciding to purchase, hold, or sell shares of our common stock.securities.

Revenue growth in the second quarter and the first quarterhalf of fiscal year 2027 was driven by data center products for accelerated computing and AI solutions. Blackwell continued to account for the majority of our system shipments.

The availability of dataland, centers,power, energy,shell, and capital is crucial to support the buildout of a full data center inclusive of NVIDIA AI infrastructure by our customers and partners is crucial,partners, and any shortage of these or other necessary resources could impact our future revenue and financial performance. Expanding land, power, shell, and energy capacityneeds to meet demand is a complex, multi-year process that involves significant regulatory, technical, and construction challenges. In addition, access to capital can be particularly constrained for less-capitalized companies, which may face difficulties securing financing for large-scale infrastructure projects. We believe AI clouds and AI model makers have significant demand for training and inference compute and currently lack the ability to secure long-term infrastructure contracts and investment-grade financing capacity to secure the AI infrastructure necessary to grow. These limitations could delay customer and partner deployments or reduce the scale of accelerated computing and AI adoption.adoption and may impact the growth of our revenue. We have undertaken initiatives to address these challenges including securing and providing guarantees of land, power, shell, and capacity of select data center infrastructure that customers require to deploy our products. We expect to focus our data center infrastructure initiatives on exceptional sites and apply the same discipline to these initiatives as we do to our supply-chain management by securing critical inputs when we have visibility into customer demand and when doing so enables long-term productive capacity. We expect our large cloud service provider customers and investment grade enterprises to continue to secure land, power, and shell commitments independently. Our land, power, and shell commitments and guarantees may impact our financial results and are dependent on the performance of our customers and partners.

We have made, and expectmay continue to continue making,make, investments and commitments in our ecosystem to enhance our growth opportunities, cultivate our ecosystem, and strengthen our competitive position. InThese theinclude firstequity quarterinvestments of fiscal$99 yearbillion 2027,and weequity madeinvestment thecommitments followingof investments:$25 billion as of July 26, 2026.

Our global supply chain for our networking products, including our Israel operationsoperations, ofwith approximately 5,9006,200 employeesemployees, supporting research and development, operations, and sales and marketing, has not been significantly impacted by the conflict in the Middle East. If the conflict escalates or extends, it could affect future product development, supply chain, and revenue, and create business uncertainty.

Macroeconomic factors, including tariffs, inflation, interest rate changes, capital market volatility, global supply chain constraints, and global economic and geopolitical developments and conflicts, have direct and indirect impacts on our results of operations, particularly demand for our products. While difficult to isolate and quantify, these macroeconomic factors impact our supply chain and manufacturing costs, employee wages, costs for capital equipment, the value of our investments, revenue, and competitive position. Our product and solution pricing generally does not fluctuate with short-term changes in our costs. Within our supply chain, we continuously manage product availability and costs with our vendors.

FirstSecond Quarter of Fiscal Year 2027 Summary

We specialize in markets where our computing platforms can provide tremendous acceleration for applications. These platforms incorporate processors, interconnects, software, algorithms, systems, and services to deliver unique value. Our platforms address large markets where our expertise is critical: Data Center and Edge Computing.

Data Center revenue was $75.2$89.0 billion, up 92%117% from a year ago and up 21%18% sequentially, driven by the ramp of our Blackwell 300Ultra productsinfrastructure. Hyperscale revenue more than doubled from a year ago and demandincreased for13% oursequentially InfiniBand,on Spectrum-Xthe Ethernet,strength andof NVLinkBlackwell solutions.Ultra. HyperscalerACIE revenue increased sequentially and remained at approximately 50% of Data Center revenue, while the remaining 50% came138% from a continuedyear diversificationago ofand customers,25% includingsequentially driven by end-demand from AI Clouds,natives, industrial, enterprise,enterprises, and sovereign customers.customers, Noas shipmentswell as hyperscalers utilizing AI clouds. Shipments of Data Center Hopper products to China occurred during the quarter, compared with $4.6 billion in the firstsecond quarter of fiscal year 2026.2027 were less than 1% of Data Center revenue.

Edge Computing revenue for the first quarter was $6.4$7.2 billion, up 29%27% from a year ago and up 10%13% sequentially. The increases were driven by robuststrong sales of Blackwell workstation demand,workstations, partially offset by slower consumer PC demandsales that waswere tempered by elevated memory and systems prices.

Gross margin increased from a year ago on lowerimproved inventorymix provisions,from primarilyBlackwell due to the prior year's $4.5 billion charge associated with H20 excess inventory and purchase obligations.Ultra. Gross margin was approximately flat sequentially as our Blackwell architecture remains the vast majority of our revenue.

Operating expenses were up 52%55% from a year ago and up 12%10% sequentially. TheThese increases were primarily driven by higher compute infrastructure and compensation and benefits expense due to employee growth and compensation increases, compute and infrastructure costs, and engineering development materials for new product developments.costs.

Refer to Note 13 of the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for disclosuredisclosures regarding segment information.

Revenue and Reportable Segments

GraphicsCompute & Networking revenue – The year-over-year increase in the second quarter and first quarterhalf of fiscal year 2027 was driven by salesthe ramp of our Blackwell architecture.Ultra infrastructure.

Reportable segment operating income – The year-over-year increase in Compute & Networking segment operating income in the second quarter of fiscal year 2027 was driven by the growth in revenue. The year-over-year increase in Compute & Networking segment operating income in the first quarterhalf of fiscal year 2027 was driven by the growth in revenue and the non-recurrence of a $4.5 billion charge associated with H20 excess inventory and purchase obligations in the first quarter of fiscal year 2026. The year-over-year increase in Graphics segment operating income in the second quarter and first quarterhalf of fiscal year 2027 was driven by the growth in revenue.

Direct Customers – 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. For the first quarterhalf of fiscal year 2027, three direct customers represented 21%,16%, 17%,15%, and 16%13% of total revenue, all of which was primarily attributable to the Compute & Networking segment.

For the firstsecond quarter of fiscal year 2026, sales to two direct customers represented 16%23% and 14%16% of total revenue, all of which werewas primarily attributable to the Compute & Networking segment. For the first half of fiscal year 2026, two direct customers represented 20% and 15% of total revenue, all of which was primarily attributable to the Compute & Networking segment.

We generate a significant amount of our revenue from a limited number of indirect customers, some individually representing 10% or more of our revenue. Certain companies purchase cloud and related services through various direct and indirect customers. We estimate that one AI research and deployment company contributed to a meaningful amount of our revenue by purchasing cloud services from our customers in the second quarter and first quarterhalf of fiscal year 2027.

Revenue by geographic region is designated based on the location of the headquarters of direct customers. The end customer and shipping location may be different from our customers'direct customers’ headquarters location. Revenue from sales to customers headquartered outside of the United States accounted for 22%38% and 30% of total revenue for the second quarter and first quarterhalf of fiscal year 20272027, respectively, and 42%30% and 35% of total revenue for the second quarter and first quarterhalf of fiscal year 2026.2026, respectively.

Gross profit consists of total net revenue less cost of revenue. Cost of revenue consists primarily of the cost of semiconductors,semiconductors (including wafer fabrication, assembly, testingtesting, and packaging,packaging), board and device costs, manufacturing support costs,costs (including labor and overhead associated with such purchases,purchases), final test yield fallout, inventory and warranty provisions, memory and component costs, tariffs, and shipping costs. Cost of revenue also includes acquisition-related intangible amortization expense, IP-related costs, and stock-based compensation related to personnel associated with manufacturing operations.

Gross margin increased to 74.9%75.0% for the firstsecond quarter of fiscal year 2027 compared to 60.5%72.4% for the firstsecond quarter of fiscal year 2026, primarilyand 75.0% for the first half of fiscal year 2027 compared to 66.6% for the first half of fiscal year 2026 due to improved mix from Blackwell Ultra. Gross margin for the priorfirst year'shalf of fiscal year 2026 was also impacted by a $4.5 billion charge associated with H20 excess inventory and purchase obligations.

Provisions for inventory and excess inventory purchase obligations totaled $1.1$985 billionmillion and $5.3$2.1 billion for the firstsecond quarter of fiscal years 2027 and 2026, respectively. The first quarterhalf of fiscal year 20262027, includes $4.5 billion associated with H20 excess inventory and purchase obligations.respectively. Sales of previously reserved inventory and settlements of excess inventory purchase obligations resulted in a provision release of $103$177 million and $436$280 million for the second quarter and first quarterhalf of fiscal yearsyear 2027 and 2026,2027, respectively. The net effect on our gross margin was an unfavorable impact of 1.2%0.8% and 11.0%1.0% in the second quarter and first quarterhalf of fiscal yearsyear 2027 and 2026,2027, respectively.

The increaseincreases in research and development expenses for the second quarter and first quarterhalf of fiscal year 2027 waswere primarily driven by a 112%127% and 120% increase in compute infrastructure, respectively, and infrastructure, a 31%30% increase in each fiscal year 2027 period in compensation and benefits, including stock-based compensation, reflecting employee growth and compensation increases, and a 204% increase in engineering development materials for new product introductions.increases.

The increaseincreases in sales, general and administrative expenses for the second quarter and first quarterhalf of fiscal year 2027 waswere primarily driven by compensation and benefits, including stock-based compensation, reflecting employee growth and compensation increases.

Total Other Income, Net

Total otherOther income, netnet, primarily consists of realized or unrealized gains and losses from investments in non-marketable securities and publicly-held equity securities. TheGains changefrom inequity Othersecurities, incomenet, (expense), net compared to the first quarter of fiscal year 2026, waswere primarily driven by unrealized gains on investments in publicly-held equity securities of $13.4 billion and non-marketable equity securities of $2.6 billion.securities.

Income tax expense was $11.6$11.8 billion and $3.1$4.8 billion for the second quarter, and $23.4 billion and $7.9 billion for the first quarterhalf, of fiscal years 2027 and 2026, respectively. Income tax as a percentage of income before income tax was 16.6%16.5% and 14.3%15.3% for the second quarter, and 16.5% and 14.9% for the first quarterhalf, of fiscal years 2027 and 2026, respectively.

The effective tax rate increased primarily due to a lower percentage of tax benefits from stock-based compensationcompensation, foreign-derived deduction eligible income, and the U.S. federal research tax credit relative to the increase in income before income tax.

Our effective tax rates for the first quarterhalf of fiscal years 2027 and 2026 were lower than the U.S. federal statutory rate of 21% primarily due to tax benefits from foreign-derived deduction eligible income, income earned in jurisdictions that were subject to taxes at rates lower than the U.S. federal statutory tax rate, stock-based compensation, and the U.S. federal research tax credit.

Our fixed incomefixed-income security investments include highly rated, diversified investment types and credit exposures with shorter maturities.

Cash provided by operating activities increased in the first quarterhalf of fiscal year 2027 compared to the first quarterhalf of fiscal year 2026 due to higher revenue.revenue, partially offset by an increase in accounts receivable due to extended payment terms on large multi-quarter agreements with certain investment-grade customers.

Cash used in investing activities increased in the first quarterhalf of fiscal year 2027 compared to the first quarterhalf of fiscal year 2026, primarily driven by higher purchases of equity investment securities.purchases, partially offset by sales and maturities.

Cash used in financing activities increasedwas flat in the first quarterhalf of fiscal year 2027 compared to the first quarterhalf of fiscal year 2026, mainly due to higher share repurchases.repurchases, dividends, and a payment related to Groq, Inc. in the first half of fiscal year 2027, offset by higher cash proceeds from debt issuance.

Our primary sources of liquidity include cash, cash equivalents, marketable debt and equity securities, and cash generated by our operations. As of AprilJuly 26, 2026, we had $50.3$56.6 billion in cash, cash equivalents, and marketable debt securities as well as $30.2$42.8 billion of marketable equity securities. We believe that we have sufficient liquidity to meet our operating requirements for at least the next twelve months and for the foreseeable future, including our future obligations. We continuously evaluate our liquidity and capital resources, including our access to external capital, to ensure we can finance future capital requirements and commitments.

Our marketable securities as of July 26, 2026, consist of publicly-held equity securities,securities and debt securities issued by the U.S. government and its agencies, highly-rated corporations and financial institutions, and foreign government entities, as well as certificates of deposit issued by highly-rated financial institutions.agencies. These marketable securities are primarily denominated in U.S. dollars. Refer to Note 5 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.