Key takeaways
View moreDespite recent price appreciation, NVIDIA's current valuation appears moderate relative to its exceptional growth prospects and market leadership in AI infrastructure. The company's strong financial performance, dominant market position, and substantial growth opportunities outweigh the identified risks, while current valuation metrics (31x forward P/E) appear reasonable given the projected 53% revenue growth and strong margins excluding one-time charges.
- NVIDIA's revenue has grown significantly, reaching $44.06 billion in the most recent quarter, driven by strong demand in the data center and AI markets.
- Profitability margins have decreased, with gross profit margin at 60.52% and net profit margin at 42.61%, impacted by a $4.5 billion charge related to U.S. export restrictions.
- The company maintains a strong liquidity position with $53.69 billion in cash and short-term investments, but the current ratio has decreased to 3.39, requiring monitoring of short-term obligations.
- U.S. export restrictions on AI chips to China pose a significant risk, with an expected $8 billion revenue loss in Q2 2026.
- NVIDIA is expanding into new markets like the UAE and developing compliant products for China to mitigate geopolitical risks.
- Analysts remain bullish on NVIDIA's long-term growth potential, citing its dominance in the AI chip market and strategic investments.
- NVIDIA's stock price has shown significant volatility, ranging from $96.30 to $141.92 between April and June 2025.
- The company expects Q2 revenue to be $45 billion, with GAAP gross margins of 71.8% and non-GAAP gross margins of 72%.
- NVIDIA's Enterprise Value to EBITDA ratio is 30.45, below the industry average, suggesting potential undervaluation.
- Recent news indicates that Nvidia's market cap reached $3.45 trillion, surpassing Microsoft, but insiders have sold significant amounts of stock, raising some investor concerns.
Evaluation summary
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Company Overview:
- NVIDIA Corp. (NVDA) designs and manufactures computer graphics processors, chipsets, and related multimedia software. Its operations are divided into two segments: Graphics Processing Unit (GPU) and Compute & Networking. The GPU segment includes GeForce GPUs for gaming and PCs, Quadro and NVIDIA RTX GPUs for enterprise workstation graphics, and automotive platforms for infotainment systems. The Compute & Networking segment consists of Data Center accelerated computing platforms, NVIDIA DRIVE automated-driving platform, and Jetson robotics.
- NVIDIA's key products and services include GPUs for gaming, data centers, and automotive applications, as well as software platforms for AI and cloud computing. The company's revenue is primarily driven by its data center and gaming segments.
- The benchmarks used for comparative analysis include the Technology Select Sector SPDR Fund (XLK). The peers used for industry comparison are Advanced Micro Devices, Inc. (AMD) and Taiwan Semiconductor Manufacturing Co., Ltd. (TSM).
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Financial Performance:
- NVIDIA's revenue has shown strong growth, increasing from $30.04 billion in the quarter ending July 31, 2024, to $44.06 billion in the quarter ending April 30, 2025. This represents a 46.67% increase over nine months.
- Net income has also increased significantly, from $16.60 billion to $18.78 billion over the same period.
- Gross profit margin has decreased from 75.15% to 60.52% in the most recent quarter, while net profit margin has decreased from 55.26% to 42.61%. This decline in margins is likely due to a $4.5 billion charge related to H20 inventory and purchase obligations due to new US export controls, as noted in the earnings call summary.
- Return on Average Assets (ROA) has decreased from 78.66% to 75.89%, Return on Average Total Equity (ROE) has decreased from 123.77% to 115.46%, and Return on Average Invested Capital (ROIC) has decreased from 101.04% to 100.55%. These metrics are still significantly above the industry averages of -12.76%, -39.71%, and -23.26%, respectively, indicating strong profitability relative to peers.
- Recent news highlights that NVIDIA reported Q1 FY26 revenue of $44.1 billion, a 69% year-over-year increase, driven by strong data center sales. However, the company is facing challenges due to U.S. export restrictions on its H20 chips, expecting an $8 billion revenue loss in Q2 FY26 and incurring a $4.5 billion charge.
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Operational Efficiency:
- Total current assets have increased from $59.63 billion to $89.94 billion, while total current liabilities have increased from $13.97 billion to $26.54 billion.
- Working capital has increased from $45.66 billion to $63.39 billion, indicating improved short-term financial health.
- Net operating cash flow has increased from $14.49 billion to $27.41 billion, demonstrating strong cash generation capabilities.
- Free cash flow to equity has increased from $13.51 billion to $26.19 billion, indicating the company's ability to generate cash for shareholders.
- Total capital expenditure has increased from $977 million to $1.23 billion, reflecting investments in growth initiatives. Depreciation, depletion, and amortization have also increased from $433 million to $611 million.
- The company returned $14.3 billion to shareholders through share repurchases and dividends, as noted in the earnings call summary.
- The current ratio has decreased from 4.27 to 3.39, while the quick ratio has decreased from 3.79 to 2.96. These ratios are still above 1, indicating sufficient liquidity, but the decreasing trend suggests a need for monitoring. The current ratio is below the industry average of 4.36, while the quick ratio is close to the industry average of 3.57.
- The debt-to-equity ratio has decreased from 17.22% to 12.27%, indicating reduced leverage. The debt/EBITDA ratio has decreased from 0.14 to 0.10, indicating a strong ability to service debt.
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Growth Opportunities:
- NVIDIA is expanding its operations into new markets, such as the UAE, and developing compliant products for the Chinese market to mitigate risks associated with U.S. export restrictions.
- The company is investing in R&D to develop new technologies, such as NVLink Fusion and Blackwell GPUs, positioning it well for long-term growth and market leadership in the AI sector.
- NVIDIA is focusing on strategic initiatives, including the Blackwell ramp, expansion of AI factory deployments, development of agentic AI platforms, and partnerships for AI-powered cybersecurity.
- The company is also focusing on onshore manufacturing, with TSMC building fabs in Arizona and partnerships with Foxconn and Wistron to construct AI supercomputer factories in the US.
- NVIDIA is expanding its networking offerings with NVLink and Spectrum X. The company is also focusing on sovereign AI, partnering with countries to build national AI platforms.
- Recent news highlights that Nvidia is collaborating with Navitas on advanced power solutions and achieved record results in MLPerf benchmarking, showcasing the performance of its GB200 GPUs.
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Recent Developments and Market Sentiment:
- The overall sentiment surrounding NVIDIA Corp. (NVDA) is cautiously optimistic, reflecting a blend of impressive financial achievements and emerging challenges.
- The company has demonstrated robust revenue growth, particularly in its data center segment, driven by the surging demand for AI infrastructure.
- Strategic initiatives, such as expanding operations into the UAE and developing compliant products for the Chinese market, underscore NVIDIA’s proactive approach to navigating geopolitical complexities.
- However, concerns about U.S. export restrictions, increasing competition, and potential market volatility temper the outlook.
- While analysts remain generally bullish with a $170 price target, investors are advised to monitor these factors closely, as they could influence NVIDIA’s future performance and valuation.
- Recent news indicates that Nvidia's market cap reached $3.45 trillion, surpassing Microsoft, and its stock has rebounded 48% since an April low. However, Nvidia insiders, including CEO Jensen Huang, have sold significant amounts of stock recently, raising some investor concerns.
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Risks and Threats:
- U.S. export restrictions on AI chips to China pose a significant risk to NVIDIA's revenue, with the company expecting an $8 billion loss in Q2 2026 and incurring a $4.5 billion charge.
- Increasing competition from AMD and internal AI chip development by major clients could erode NVIDIA's market share and pricing power in the long term.
- Geopolitical tensions and potential trade disputes could disrupt NVIDIA's supply chain and impact its ability to access key markets, creating uncertainty for investors.
- The company faces risks related to accurately forecasting demand and managing supply/inventory, which has led to significant financial impacts in the past.
- There is potential for quality issues, production delays, and inventory write-downs due to complex product transitions.
- Regulatory risks around the responsible development and use of AI technologies also pose a threat.
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Valuation Analysis:
- The Enterprise Value to EBITDA ratio is 30.45, while the Enterprise Value to Sales ratio is 18.10. These ratios are significantly below the industry averages of 232.96 and 12.19, respectively, suggesting that NVIDIA may be undervalued relative to its peers. However, the industry average for Enterprise Value to Sales appears to be an error, as NVIDIA's ratio is higher than the average.
- Analysts suggest that NVIDIA's stock is reasonably valued at 31 times forward earnings, down from 50 times earlier this year, making it an attractive investment.
- Potential catalysts include continued strong demand for AI-related products and services, successful execution of strategic initiatives, and favorable resolution of regulatory and legal matters.
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Price Performance:
- NVIDIA's stock price has shown significant volatility over the past few months. The price ranged from $96.30 on April 8, 2025, to $141.92 on June 4, 2025.
- NVIDIA has consistently outperformed the Technology Select Sector SPDR Fund (XLK) across all measured time periods. For instance, over the past three years, NVDA has delivered a total return of 656.65% compared to XLK's 73.45%.
- Recent price movements have been influenced by news events and market sentiment, such as the release of Q1 FY26 results and concerns about U.S. export restrictions.
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Future Outlook:
- NVIDIA expects Q2 revenue to be $45 billion, plus or minus 2%. GAAP and non-GAAP gross margins are expected to be 71.8% and 72%, respectively.
- Analysts expect NVIDIA to achieve 53% revenue growth in fiscal year 2026, driven by its dominance in the AI chip market and ongoing innovation.
- Recent news and developments, such as the expansion into new markets and the development of compliant products for China, are expected to influence the company's future performance positively.
- Management expressed confidence in the company's growth prospects, highlighting the increasing demand for inference and the potential of agentic AI.
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Summary:
- NVIDIA Corp. (NVDA) exhibits strong financial health, driven by robust revenue growth and high profitability. The company maintains a solid liquidity position and a conservative financing strategy.
- Key strengths include its dominance in the AI chip market, strategic investments in new technologies and markets, and strong cash flow generation.
- Weaknesses include decreasing profit margins, a decreasing current ratio, and reliance on a limited number of key customers and partners.
- Opportunities include market expansion, R&D initiatives, and strategic acquisitions.
- Threats include U.S. export restrictions, increasing competition, geopolitical tensions, and regulatory risks.
- NVIDIA's overall financial health is strong, but investors should monitor key metrics such as profit margins, liquidity ratios, and debt levels.
- Critical factors for future performance include successful execution of strategic initiatives, effective management of risks, and continued innovation in the AI sector.
- Areas requiring further monitoring include the impact of export controls on the China market, the competitive landscape, and macroeconomic conditions.
- NVIDIA presents a compelling investment profile with strong growth potential, but investors should be aware of the risks and challenges the company faces. The valuation appears reasonable based on forward earnings, but the high Beta suggests that the stock is sensitive to market movements. The company's position relative to industry trends and recent developments is favorable, but investors should monitor geopolitical risks and competitive pressures. Potential catalysts include continued strong demand for AI-related products and services, while headwinds include U.S. export restrictions and increasing competition. Overall, NVIDIA offers attractive investment characteristics for investors seeking exposure to the AI sector, but careful monitoring of risks and challenges is essential.
Price history
Fundamentals
Insights
- NVIDIA exhibits strong revenue growth and profitability, driven by increasing demand for its products and services, particularly in the data center and AI markets.
- The company maintains a solid liquidity position, although the decreasing current and quick ratios suggest a need for careful monitoring of short-term obligations.
- NVIDIA's conservative financing strategy, characterized by a low debt-to-equity ratio, contributes to its long-term solvency and financial stability.
- The company's capital allocation strategy is balanced, with investments in organic growth, strategic acquisitions, and shareholder returns.
- Export controls and geopolitical tensions pose potential risks to NVIDIA's future revenue and profitability, particularly in the China market.
Analysis
- Revenue
- Revenue has shown strong and consistent growth, driven by increasing demand for NVDA's products and services.
- The YoY revenue growth exceeds the 5-year CAGR, indicating accelerated growth.
- This growth is linked to new product launches, market expansion, and pricing strategies.
- Profitability
- NVDA maintains strong profitability, with a high net profit margin compared to the industry average.
- However, the net profit margin has been decreasing, suggesting a potential decline in overall profitability.
- The one-time charge related to export controls should be considered when evaluating the company's sustainable earnings.
- Liquidity
- NVDA has a strong liquidity position, with ample cash and short-term investments.
- However, the current and quick ratios are decreasing and below the industry average, suggesting a need for careful monitoring of short-term liquidity.
- The company's ability to meet its short-term obligations with its most liquid assets is declining.
- Solvency
- NVDA's long-term solvency appears stable, with a low debt-to-equity ratio and consistent long-term debt levels.
- The company uses less debt financing compared to its peers, indicating a conservative financing strategy.
- The company has a strong ability to service its debt compared to peers.
- Operational Efficiency
- NVDA demonstrates efficient asset utilization, as indicated by its high return on average assets.
- However, the return on average assets has been decreasing, suggesting a potential decline in asset utilization efficiency.
- The company's capital expenditure efficiency appears to be good, as past investments have contributed to strong revenue and profit growth.
- Cash Flow Analysis - NVDA exhibits strong cash flow generation, with a high free cash flow margin. - The company's cash flow to total debt ratio is significantly above the industry average, indicating a strong capacity to cover its debt obligations with its cash flow. - Total capital expenditure is significantly above the industry average, indicating that NVDA is investing heavily in its operations compared to its peers.
- Risk Factors
- The increasing current liabilities and decreasing current ratio could be a potential area of concern if not managed effectively.
- The impact of export controls on the China market, as discussed in the SEC filings, could affect future receivables and inventory levels.
- The one-time charge related to export controls should be considered when evaluating the company's sustainable earnings.
- Future Outlook
- Future financial performance is projected to remain strong, driven by continued revenue growth and profitability improvements.
- The company's financial flexibility should allow for continued investments in R&D, acquisitions, and shareholder returns.
- Key metrics to monitor include the current ratio, debt-to-equity ratio, inventory turnover, revenue growth, gross margin, operating margin, and net income.
- Profitability
Financial statements
Public filings
- NVIDIA is a leading provider of accelerated computing solutions, particularly for data centers, AI, and graphics applications, with a diversified customer base across cloud, enterprise, gaming, and automotive markets.
- The company is facing significant challenges from evolving global trade restrictions and export control measures, especially related to its exposure to the China market, which could materially impact its revenue and operations.
- NVIDIA's ability to accurately forecast demand and manage its complex supply chain and product transitions is critical, as past missteps have resulted in substantial financial charges.
- Regulatory scrutiny around the responsible development and use of AI technologies is increasing, posing both risks and opportunities for NVIDIA as a major provider of AI computing platforms.
- Macroeconomic factors like inflation, interest rates, and supply chain constraints are creating headwinds that NVIDIA must navigate, potentially impacting its costs, liquidity, and profitability.
- The company's legal matters, particularly the ongoing securities class action lawsuit, represent an overhang that could result in further financial and reputational impacts if not resolved favorably.
- Overall, NVIDIA appears to be navigating a complex and rapidly evolving landscape, with both significant growth opportunities and substantial risks that will require careful execution and strategic positioning to overcome.
Core Business and Operations:
- NVIDIA is a leading technology company that pioneered accelerated computing to solve complex computational problems
- The company operates in two main segments:
- Compute & Networking: Includes data center accelerated computing platforms, AI solutions, networking, automotive platforms, and cloud computing services
- Graphics: Includes GPUs for gaming, professional visualization, cloud-based computing, and automotive infotainment
- NVIDIA's products and platforms are used across a wide range of industries, including cloud computing, enterprise, gaming, automotive, and more
- Key customers include cloud service providers, consumer internet companies, enterprises, automakers, and system integrators
- Major competitors include AMD, Intel, Huawei, Qualcomm, and others offering competing semiconductor and computing solutions
Industry and Market Trends:
- The computing industry is experiencing a rapid shift towards accelerated computing and AI, driven by the growing complexity and scale of AI models and applications
- There is increasing regulatory focus on the responsible development and use of AI technologies, with new rules and restrictions emerging in the U.S., EU, and other regions
- Geopolitical tensions and export control measures, particularly between the U.S. and China, are creating significant uncertainty and disruption in global semiconductor supply chains
- Macroeconomic factors like inflation, interest rates, and supply chain constraints are impacting the semiconductor industry and NVIDIA's operations
Recent Events:
- NVIDIA introduced its new Blackwell architecture for data center computing, which is seeing strong demand
- The company incurred a $4.5 billion charge in Q1 FY2026 due to new U.S. export control requirements on its H20 products for the China market
- NVIDIA is increasing its U.S.-based manufacturing to strengthen supply chain resilience and meet growing demand for AI infrastructure
Risk Factors:
- Risks related to accurately forecasting demand and managing supply/inventory, which has led to significant financial impacts in the past
- Exposure to global trade restrictions and export control measures, which could limit the company's ability to serve certain markets
- Reliance on a limited number of key customers and partners, creating concentration risk
- Potential for quality issues, production delays, and inventory write-downs due to complex product transitions
- Regulatory risks around the responsible development and use of AI technologies
- Macroeconomic factors like inflation, interest rates, and supply chain constraints
Legal Matters:
- Ongoing securities class action lawsuit related to statements about channel inventory and cryptocurrency mining impact
- Derivative lawsuits related to the same issues, which remain stayed pending resolution of the securities class action
Management's Discussion and Analysis:
- Revenue growth driven by strong demand for data center compute and networking platforms, particularly for AI applications
- Gross margins impacted by charges related to H20 product excess inventory and purchase obligations
- Increasing operating expenses due to higher compensation, infrastructure, and engineering costs for new product introductions
- Healthy liquidity position with $53.7 billion in cash, cash equivalents, and marketable securities as of Q1 FY2026
- Continued capital return to shareholders through share repurchases and dividend payments
Earnings calls
Earnings Report 2026Q1 (2025-05-28)
Key takeaways
- Blackwell Ramp is Critical: The rapid ramp-up of Blackwell is essential to offset the negative impact of the H20 export ban and drive future growth.
- Inference is a Major Growth Driver: The surge in inference demand, particularly for reasoning AI, represents a significant growth opportunity for NVIDIA.
- Export Controls Pose a Risk: The H20 export ban and potential future restrictions on sales to China could materially impact NVIDIA's revenue and market share.
- Sovereign AI is an Emerging Market: The increasing investment in sovereign AI infrastructure by various countries presents a new growth engine for NVIDIA.
- Enterprise AI is Gaining Momentum: The readiness of enterprise AI, supported by NVIDIA's RTX Pro and DGX systems, is poised to modernize IT infrastructure.
- Networking is a Key Differentiator: NVIDIA's networking solutions, including NVLink and Spectrum X, are crucial for optimizing AI workloads and improving cluster utilization.
Focus of management’s prepared remarks
- Data Center Growth: Data center revenue grew significantly, driven by AI workloads transitioning to inference and the build-out of AI factories. Blackwell's ramp was the fastest in the company's history, contributing nearly 70% of data center compute revenue.
- H20 Export Controls: New export controls on H20 impacted revenue, resulting in a $4.5 billion charge due to inventory write-down and purchase obligations. The company is evaluating options to supply data center compute products compliant with revised export control rules.
- Blackwell Ramp and GB200: The Blackwell ramp is progressing rapidly, with major hyperscalers deploying thousands of GB200 GPUs per week. GB300 systems are sampling, with production shipments expected later this quarter, leveraging the same architecture and footprint as GB200 for seamless transition.
- Inference Demand: A sharp jump in inference demand is being witnessed, driven by increased token generation from OpenAI, Microsoft, and Google. Blackwell NBL72 is significantly improving AI inference throughput.
- AI Factory Deployments: The pace and scale of AI factory deployments are accelerating, with nearly 100 NVIDIA-powered AI factories in flight, a twofold increase year-over-year.
- Agentic AI: The transition from generative to agentic AI, capable of perceiving, reasoning, planning, and acting, will transform industries. The Llama NemoTron family of open reasoning models is designed to supercharge agentic AI platforms.
- Networking Growth: Sequential growth in networking resumed, driven by customers leveraging the platform to scale up and scale out AI factory workloads. NVLink shipments exceeded $1 billion in Q1.
- Gaming Revenue: Gaming revenue reached a record, driven by strong adoption of Blackwell architecture by gamers, creatives, and AI enthusiasts.
- Automotive Growth: Automotive revenue increased, driven by the ramp of self-driving across customers and robust end demand for NEVs.
- Guidance: Q2 revenue is expected to be $45 billion, plus or minus 2%, with modest sequential growth across all platforms. GAAP and non-GAAP gross margins are expected to be 71.8% and 72%, respectively.
Focus of the analyst Q&A
- China Revenue Impact:
- Clarification on the financial impact of the H20 export ban, including the magnitude of lost revenue and the potential for future impact.
- Questions about the possibility of shipping modified versions of GPUs to China in the future.
- AI Spending and Build-Out:
- Inquiries about the progress of the trillion-dollar AI spending outlined at GTC and whether the build-out will be uniform across different spenders.
- Concerns about potential periods of digestion in AI infrastructure spending.
- GPU Cluster Investments:
- Questions about the scale and magnitude of announced and unannounced large GPU cluster investments.
- Impact of these orders on lead times for Blackwell and current visibility.
- Guidance and Business Drivers:
- Clarification on the Q2 revenue guidance, particularly regarding the impact of the H20 export ban and the strength of other business segments.
- Assessment of the primary drivers for the better-than-expected performance in the non-China business.
- Networking Business Strength:
- Seeking additional details on the strength of the networking business, particularly the adoption of Ethernet solutions at CSPs.
- Questions about changes in network attach rates.
- Inference Demand:
- Understanding the company's ability to serve the increasing demand for inference, especially related to reasoning models.
- Determining the size of the inference business and the necessity of full-on NBL72 Rackscale solutions for reasoning inference.
Summary
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Financial Performance
NVIDIA reported a strong Q1 fiscal 2026 with revenue of $44 billion, up 69% year-over-year, exceeding their initial outlook. Data center revenue was a significant driver, growing 73% year-over-year to $39 billion. Gaming revenue also reached a record $3.8 billion, up 48% sequentially and 42% year-over-year. However, the company took a $4.5 billion charge related to H20 inventory and purchase obligations due to new US export controls. GAAP gross margins were 60.5%, and non-GAAP gross margins were 61%. Excluding the H20 charge, non-GAAP gross margins would have been 71.3%. The company returned a record $14.3 billion to shareholders through share repurchases and dividends.
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Revenue Drivers
Data center revenue was primarily driven by the ramp of Blackwell GPUs and the transition of AI workloads to inference. The introduction of GB200 NBL systems significantly contributed to data center compute revenue. Gaming revenue was boosted by strong adoption of Blackwell architecture by gamers, creatives, and AI enthusiasts. Networking revenue also contributed significantly, growing 64% quarter-over-quarter to $5 billion, driven by Spectrum X adoption. The H20 export ban negatively impacted revenue from China, with a meaningful decrease expected in Q2.
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Profit Margins and Cost Management
GAAP and non-GAAP gross margins were 60.5% and 61%, respectively. Excluding the H20 charge, non-GAAP gross margins would have been 71.3%. The company expects GAAP and non-GAAP gross margins to be 71.8% and 72%, respectively, in Q2, driven by better Blackwell profitability. Operating expenses increased due to higher compensation and employee growth, reflecting investments in infrastructure capabilities and AI solutions. The company expects full-year fiscal year 2026 operating expense growth to be in the mid-thirty percent range.
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Guidance and Outlook
NVIDIA expects Q2 revenue to be $45 billion, plus or minus 2%. Modest sequential growth is anticipated across all platforms, with the Blackwell ramp partially offset by a decline in China revenue due to the H20 export ban, resulting in a loss of approximately $8 billion in H20 revenue for Q2. GAAP and non-GAAP gross margins are expected to be 71.8% and 72%, respectively. The company is working towards achieving gross margins in the mid-seventies range later this year. Full-year fiscal year 2026 operating expense growth is expected to be in the mid-thirty percent range.
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Strategic Initiatives
Key strategic initiatives include the Blackwell ramp, expansion of AI factory deployments, development of agentic AI platforms, and partnerships for AI-powered cybersecurity. The company is also focused on onshore manufacturing, with TSMC building fabs in Arizona and partnerships with Foxconn and Wistron to construct AI supercomputer factories in the US. NVIDIA is also expanding its networking offerings with NVLink and Spectrum X. The company is also focusing on sovereign AI, partnering with countries to build national AI platforms.
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Management Commentary
Management expressed confidence in the company's growth prospects, highlighting the increasing demand for inference and the potential of agentic AI. They emphasized the importance of US leadership in AI and the need to support collaboration with top developers globally. Management also discussed the impact of export controls on the China market and the company's efforts to explore limited ways to compete. The overall tone was optimistic, with a focus on the long-term growth potential of AI and NVIDIA's position in the market. Jensen Huang stated, "The age of AI is here," underscoring the company's readiness to capitalize on the opportunities ahead.
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Industry and Market Conditions
The company views AI as a new infrastructure, essential for every country and industry. They noted the increasing demand for AI factories and the transition from generative to agentic AI. The company also highlighted the importance of sovereign AI, with countries investing in national AI platforms. Export controls and geopolitical factors are influencing the company's operations, particularly in the China market. The company sees significant opportunities in enterprise AI, telco infrastructure, and industrial AI.
News evaluation
Sentiment rating:Mixed
Jun 04, 2025Summary
The overall sentiment surrounding NVIDIA Corp. (NVDA) is cautiously optimistic, reflecting a blend of impressive financial achievements and emerging challenges. The company has demonstrated robust revenue growth, particularly in its data center segment, driven by the surging demand for AI infrastructure. Strategic initiatives, such as expanding operations into the UAE mitigating risks and developing compliant products for the Chinese market, underscore NVIDIA’s proactive approach to navigating geopolitical complexities. However, concerns about U.S. export restrictions, increasing competition, and potential market volatility temper the outlook. While analysts remain generally bullish with a $170 price target, investors are advised to monitor these factors closely, as they could influence NVIDIA’s future performance and valuation.
Key takeways
Nvidia reported strong Q1 FY26 results, driven by robust demand for AI infrastructure, but faces challenges from U.S. export restrictions on its H20 chips.
Analysts remain bullish on Nvidia's long-term growth potential, citing its dominance in the AI chip market and strategic investments in new technologies and markets.
Investors should monitor geopolitical risks and competitive pressures, as these factors could impact Nvidia's future performance and valuation.
News
Nvidia reported Q1 FY26 revenue of $44.1 billion, a 69% year-over-year increase, driven by strong data center sales.
Nvidia is facing challenges due to U.S. export restrictions on its H20 chips, expecting an $8 billion revenue loss in Q2 FY26 and incurring a $4.5 billion charge.
Despite export restrictions, Nvidia's data center revenue grew 73% year-over-year, highlighting strong demand for AI infrastructure.
Nvidia is expanding its operations into the UAE and planning to release a cheaper Blackwell AI chip for the Chinese market to comply with U.S. regulations.
Nvidia's market cap reached $3.45 trillion, surpassing Microsoft, and its stock has rebounded 48% since an April low.
Nvidia is collaborating with Navitas on advanced power solutions and achieved record results in MLPerf benchmarking, showcasing the performance of its GB200 GPUs.
Nvidia's networking revenue increased by 64% quarter-over-quarter, demonstrating growth in its broader AI ecosystem.
Nvidia insiders, including CEO Jensen Huang, have sold significant amounts of stock recently, raising some investor concerns.
Analysis
Analysts maintain a bullish outlook on Nvidia's long-term growth, citing strong demand for AI-related products and services.
Concerns persist regarding Nvidia's valuation, with some analysts questioning the sustainability of its rapid growth and potential for market corrections.
JPMorgan analysts predict continued strong demand for Nvidia's Blackwell chips, supporting revenue growth and justifying its premium valuation.
Wedbush analysts believe Nvidia will continue to benefit from investments in AI infrastructure from major tech firms, driving long-term growth.
Oppenheimer analysts expect the impact of export restrictions to be relatively modest, as Nvidia finds new markets and develops compliant products.
Analysts suggest that Nvidia's stock is reasonably valued at 31 times forward earnings, down from 50 times earlier this year, making it an attractive investment.
Analysts expect Nvidia to achieve 53% revenue growth in fiscal year 2026, driven by its dominance in the AI chip market and ongoing innovation.
Analysts predict Nvidia's stock could see significant gains post-earnings based on historical performance trends, driven by strong client demand and product rollouts.
Trends
Nvidia's strategic shift towards U.S. manufacturing and expansion into new markets like the UAE reflects a proactive approach to mitigating geopolitical risks and diversifying its revenue streams.
The increasing demand for AI infrastructure is driving significant growth in Nvidia's data center business, with revenue surging 73% year-over-year, highlighting the company's pivotal role in the AI revolution.
Nvidia's focus on innovation and development of new technologies, such as NVLink Fusion and Blackwell GPUs, positions it well for long-term growth and market leadership in the AI sector.
Risk factors
U.S. export restrictions on AI chips to China pose a significant risk to Nvidia's revenue, with the company expecting an $8 billion loss in Q2 2026 and incurring a $4.5 billion charge.
Increasing competition from AMD and internal AI chip development by major clients could erode Nvidia's market share and pricing power in the long term.
Geopolitical tensions and potential trade disputes could disrupt Nvidia's supply chain and impact its ability to access key markets, creating uncertainty for investors.
Comparative analysis
Benchmarks (as of 2025-06-04)
- Performance Comparison:
- NVIDIA Corp. (NVDA) has consistently outperformed the Technology Select Sector SPDR Fund (XLK) across all measured time periods. For instance, over the past three years, NVDA has delivered a total return of 656.65% compared to XLK's 73.45%. This outperformance is evident in shorter time frames as well, such as the YTD performance where NVDA returned 2.62% versus XLK's 2.26%, and the one-month performance where NVDA returned 25.0% versus XLK's 10.83%.
- Risk and Return Analysis:
- NVIDIA has provided higher annualized returns compared to XLK. Over the past three years, NVDA's annualized return was 96.32%, significantly higher than XLK's 20.15%. However, NVIDIA has also exhibited higher annualized volatility. For example, in Q2 2022, NVDA's volatility ranged from 64.6% to 79.08%, while XLK's ranged from 37.06% to 41.59%. The maximum drawdown for NVDA was -66.34% on 2022-10-14, which is substantially larger than XLK's maximum drawdown of -33.56% on 2022-10-12. This indicates that NVDA carries a higher level of risk.
- Risk-Adjusted Performance:
- NVIDIA's Sharpe Ratio is generally higher than that of XLK, suggesting that NVDA offers better risk-adjusted returns. However, this advantage has fluctuated over time. For example, in Q3 2023, NVDA's Sharpe Ratio ranged from 1.72 to 2.59, while XLK's ranged from 0.51 to 1.4. NVIDIA's Beta is consistently higher than XLK's, indicating that NVDA is more sensitive to market movements. As of Q2 2025, NVIDIA's Beta ranges from 2.07 to 2.14, while XLK's Beta ranges from 1.39 to 1.41.
- Overall Assessment:
- NVIDIA has demonstrated significant outperformance compared to the Technology Select Sector SPDR Fund (XLK) across various time horizons. However, this outperformance comes with higher volatility and greater drawdowns, as evidenced by its maximum drawdown of -66.34% compared to XLK's -33.56%. While NVIDIA generally offers better risk-adjusted returns, as indicated by its higher Sharpe Ratio, its higher Beta suggests greater sensitivity to market movements. Investors should consider their risk tolerance and investment objectives when evaluating NVDA relative to XLK.
Peers Price History(as of 2025-06-04)
- Performance Comparison:
- NVIDIA Corp. (NVDA) has demonstrated strong historical performance over the past 2 and 3 years, with returns of 267.39% and 656.65% respectively. However, its year-to-date performance is only 2.62%. Without performance data for Advanced Micro Devices, Inc. (AMD) and Taiwan Semiconductor Manufacturing Co., Ltd. (TSM), a direct comparison is not possible.
- Risk and Return Analysis:
- NVIDIA Corp. (NVDA) has annualized returns of 91.68% and 96.32% over the past 2 and 3 years, respectively. The annualized volatility for NVDA has fluctuated, with recent values around 36.6% as of Q4 2024. The maximum drawdown for NVDA was -66.34% on 2022-10-14, indicating significant risk during market downturns. Without data for AMD and TSM, a comparative analysis of risk and return is not possible.
- Risk-Adjusted Performance:
- NVIDIA Corp. (NVDA) has shown fluctuating Sharpe Ratios, with a recent value of 0.63 as of Q4 2024. The Beta value for NVDA is 2.09 as of Q4 2024, indicating higher sensitivity to market movements compared to the overall market. Without data for AMD and TSM, a comparative analysis of risk-adjusted performance is not possible.
- Overall Assessment:
- NVIDIA Corp. (NVDA) has demonstrated strong historical returns but also exhibits high volatility and significant drawdown risk. The high Beta value suggests that NVDA's performance is closely tied to overall market movements. Without comparative data for Advanced Micro Devices, Inc. (AMD) and Taiwan Semiconductor Manufacturing Co., Ltd. (TSM), it is challenging to provide a comprehensive relative assessment.
Peers Fundamentals(as of 2025-04-30)
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Market Position and Size:
- NVIDIA (NVDA) has a significantly larger market capitalization of $3,462,848 million compared to Advanced Micro Devices (AMD) at $192,265.61 million and Taiwan Semiconductor Manufacturing (TSM) at $1,049,624.18 million.
- NVDA's substantial market cap is supported by its high revenue of $148,515 million, EBITDA of $88,248 million, and Net Income of $76,774 million, all of which are significantly higher than AMD and TSM.
- NVDA holds a dominant market position within its peer group due to its significantly larger size and strong financial performance.
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Profitability and Efficiency:
- NVDA's Gross Profit Margin of 70.11% is significantly higher than AMD's 45.15% and TSM's 56.02%, and far exceeds the industry average of -40.07%.
- NVDA's EBITDA Margin of 59.42% is lower than TSM's 68.81% but substantially higher than AMD's 21.54% and the industry average of -1950.36%.
- NVDA's Net Profit Margin of 51.69% is higher than AMD's 8.03% and TSM's 41.68%, and significantly exceeds the industry average of -1877.28%.
- NVDA demonstrates superior profitability compared to its peers and industry standards, which is consistent with its larger market capitalization and revenue.
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Financial Health and Stability:
- NVDA's Current Ratio of 3.39 and Quick Ratio of 2.96 are higher than AMD (2.8 and 1.97, respectively) and TSM (2.39 and 2.18, respectively), but lower than the industry average (4.36 and 3.57, respectively).
- NVDA's Total Debt to Total Equity Ratio of 12.27 and Debt / EBITDA of 0.1 are lower than TSM (23.69 and 0.49, respectively), AMD (8.17 and 0.7, respectively) and the industry average (64.11 and 12.97, respectively).
- NVDA maintains a strong liquidity position and a conservative debt profile relative to its market cap and peer group.
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Valuation and Market Perception:
- NVDA's Enterprise Value To Sales of 18.1 and Price To Sales Ratio of 23.52 are significantly higher than AMD (5.95 and 6.95, respectively), TSM (8.41 and 10.85, respectively), and the industry average (12.19 and 14.28, respectively).
- NVDA's Enterprise Value To EBITDA of 30.45 is higher than TSM (12.22) but lower than AMD (27.55) and the industry average (232.96).
- NVDA's Price To Earnings of 45.71 is lower than AMD (86.92) but higher than TSM (26.04) and lower than the industry average (67.67).
- NVDA's Price to Book Ratio of 41.28 is significantly higher than AMD (3.31), TSM (7.57), and the industry average (6.05).
- NVDA's valuation metrics suggest that the market has high expectations for its future growth and profitability, resulting in a premium valuation compared to its peers and industry standards.
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Cash Flow and Capital Management:
- NVDA's Net Operating Cash Flow of $76,158 million and Free Cash Flow of $72,064 million are significantly higher than AMD and TSM.
- NVDA's Total Capital Expenditure of $4,094 million is lower than TSM's $33,278.11 million but higher than AMD's $706 million.
- NVDA exhibits strong cash flow generation capabilities relative to its size, peers, and industry norms.
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Growth and Future Prospect:
- NVDA shows consistently higher growth in Sales/Revenue compared to the peer group average.
- NVDA's EBITDA, Net Income, Basic Earnings per Share, and Free Cash Flow growth rates have fluctuated significantly year-to-year, as indicated by the high standard deviations.
- NVDA's 3-year and 5-year CAGR figures are significantly higher than the peer group average for Sales/Revenue, EBITDA, Net Income, Basic Earnings per Share, and Free Cash Flow.
- NVDA's superior growth rates in key financial metrics indicate a strong competitive position and potential for future market share gains.
- NVDA's Free Cash Flow Margin growth is inferior to peers.
- NVDA's growth rates have been decreasing over the 5-year period for EBITDA, Net Income, Basic Earnings per Share, and Free Cash Flow.
- NVDA's most recent year-over-year growth rates are lower than its 5-year CAGRs for EBITDA, Net Income, and Basic Earnings per Share, indicating a deceleration trend.
- NVDA's growth is primarily concentrated in revenue and earnings-related metrics, with some deceleration in recent periods.
- NVDA's revenue growth is not consistently translating into higher profit margins, as evidenced by the negative growth in EBIT Margin in the most recent year.
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Potential for Investment:
- NVDA presents an attractive investment opportunity due to its dominant market position, superior profitability, efficient returns, strong liquidity, and growth potential.
- However, its premium valuation and recent deceleration in growth rates warrant careful consideration.
- Compared to its peers and industry benchmarks, NVDA offers a compelling combination of size, growth, profitability, and financial stability.
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Key Risks and Considerations:
- NVDA's premium valuation implies high market expectations, which could lead to a correction if growth slows or fails to meet expectations.
- The cyclical nature of the semiconductor industry could impact NVDA's revenue and earnings growth.
- Increased competition from AMD and other players in the GPU and AI chip markets could erode NVDA's market share and profitability.
- Any significant downturn in the global economy or key end markets (e.g., gaming, data centers, automotive) could negatively impact NVDA's financial performance.
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Overall Assessment:
- NVDA exhibits strong overall financial health and performance relative to its peer group and industry averages.
- It has a dominant market position, superior profitability, efficient returns, strong liquidity, and a conservative debt profile.
- While its valuation metrics are premium, they reflect the market's high expectations for its future growth and profitability.