Key Highlights

● NVDA shares fell 1.29% to $226.32 in Monday’s session on 70.05 million shares, about $15.85 billion traded and third among US stocks by dollar value.

● Microsoft said its Maia 300 chip will become the primary inference system for its own products and services, with Maia 300 production beginning in 2027.

● Nvidia reported fiscal second-quarter revenue of $96.2 billion, up 106% from a year earlier, and guided fiscal third-quarter revenue to about $108 billion.

● The board authorized a $150 billion buyback on September 28, and the stock sits about 6% below its October 6 record close.

What moved Nvidia (NASDAQ:NVDA) on Monday was news from one of its biggest customers. Microsoft (NASDAQ:MSFT) said its next-generation custom chip, Maia 300, will become the primary inference system for Microsoft’s own products and services. Nvidia shares fell 1.29% to $226.32. About 70.05 million shares changed hands, worth roughly $15.85 billion by a price-times-volume measure. That made Nvidia the third most active US stock of the session by dollar value, even though trading was quieter than usual. Relative volume was 0.63, and midday volume was running well below the stock’s recent daily average of about 152 million shares.

Microsoft plans to scale the Maia family to multi-gigawatt deployments starting next year, with Maia 300 production also beginning in 2027. Microsoft called the chip its “biggest bet yet on our own silicon.” The company says Maia 300 will deliver 40% more tokens per megawatt than leading GPU-based systems. That is Microsoft’s own estimate, and it has not been tested in production deployments. Maia racks hold 96 processors and draw about 167 kilowatts, compared with 72 GPUs and 142 kilowatts for Nvidia’s GB300 racks, according to press reports. Processor counts alone cannot settle the performance contest. Microsoft shares rose about 1.25% on the day.

Chip stocks were weak across the board, so Microsoft was not the only factor. AMD (NASDAQ:AMD) fell about 3.4%, Intel (NASDAQ:INTC) more than 3%, Micron (NASDAQ:MU) about 4% and SanDisk (NASDAQ:SNDK) about 6.5%. The memory names fell after Chinese memory maker CXMT reported progress on a new memory-cell design. The wider market was mixed. At midday the Dow was up about 0.4%, the S&P 500 was roughly flat and the Nasdaq Composite was down about 0.4%. Investors were also watching oil prices above $90 a barrel, a 10-year Treasury yield near 5.24%, and the start of bank earnings on Tuesday. Nvidia had closed at $229.28 the previous Friday. The intraday low on Monday was $224.90.

What Nvidia Does

Nvidia designs the graphics processing units, networking gear and software that most of the world’s AI data centers run on. It also sells chips for gaming, professional visualization and automotive uses, but data centers now make up almost all of its revenue. In the fiscal second quarter, data center revenue was $89 billion, more than 92% of the total. Hyperscale cloud providers, including Microsoft, account for about half of Nvidia’s revenue. One direct customer alone made up 16%. That concentration helps explain why investors pay close attention when a hyperscaler talks up its in-house silicon.

Latest Results and Guidance

On August 26, Nvidia reported fiscal second-quarter revenue of $96.2 billion, up 106% from a year earlier and 18% from the prior quarter. Gross margin was 75%. GAAP net income rose 126% to $59.7 billion. Adjusted earnings were $2.22 per share, ahead of the $2.09 consensus. It was the company’s 15th straight quarterly earnings beat. Chief executive Jensen Huang said that “AI has reached its inflection point” and that “the AI infrastructure buildout is at full steam.”

For the fiscal third quarter, Nvidia guided to revenue of about $108 billion, plus or minus 2%, with gross margin of about 74%. The outlook assumes no data center compute revenue from China. The chief financial officer expects revenue growth of about 70% in fiscal 2028, though supply constraints could limit it. Management also says the next-generation Vera Rubin platform is shipping. Nvidia returned about $26 billion to shareholders during the quarter. The board authorized a $150 billion buyback on September 28.

Valuation

Nvidia trades at about 28.6 times trailing earnings, with trailing earnings per share of $7.91. On forward estimates the multiple is much lower. On analysts’ average fiscal 2028 earnings estimate, it trades at about 14 times, compared with about 23 times for Microsoft. The S&P 500 trades at a forward multiple of 21 to 23 times. The consensus rating is “Buy,” with an average price target of $321.89, roughly 42% above Monday’s price. The stock was about 6% below its October 6 record close, with a 52-week range of $164.27 to $243.37.

Bull Case vs. Bear Case

Bulls say Monday’s news changes the competitive picture less than the share price suggests. Microsoft launched its first Maia chip in November 2023. Since then, Nvidia’s quarterly revenue has grown to more than five times what it was then. Microsoft also plans to be among the first cloud providers to deploy Nvidia’s Vera Rubin systems. Other demand is growing even faster: revenue from AI clouds, enterprises and governments rose 138% to $40.3 billion last quarter, so Nvidia is depending less on hyperscalers. Forecasts suggest that capital spending by the five largest hyperscalers could reach $1.3 trillion in 2027, up from nearly $800 billion in 2026.

Bears see custom silicon as a direct threat to Nvidia’s high margins. One analysis argued that Microsoft does not have to abandon Nvidia to put pressure on its economics. It argued that moving routine inference work to Maia could cut Nvidia hardware spending even as AI usage grows. Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) also design their own AI chips. Other concerns include a warning that higher memory costs will pull gross margin down to 71% to 72% in the fiscal fourth quarter, as well as high Treasury yields. Insider selling has continued, including a director’s sale of about $144 million in stock in September. There are also AI-bubble warnings from prominent investors and a reported $21 million options position betting on the stock falling below $180 by January.

Nvidia’s Next Tests: TSMC Results and the Maia Question

The next big test of chip demand comes Thursday, when Taiwan Semiconductor Manufacturing (NYSE:TSM), which makes Nvidia’s most advanced processors, reports quarterly results. TSMC is expected to post its sixth straight quarter of record profit. US inflation and retail sales data are due later this week and could move rate-sensitive growth stocks. Over a longer horizon, the key question is whether Maia takes workloads Nvidia would otherwise win, or simply helps Microsoft meet demand that is outrunning its capacity. Investors will also watch for updates on the Vera Rubin ramp, on gross margins as memory costs rise, and on any change to Nvidia’s China assumptions when it next reports.