Nvidia (NVDA) released its fiscal first-quarter 2027 earnings on May 20 after the markets closed. The report reflected the “usual” quarter with earnings blowing past estimates and the company’s own guidance. The outlook for the current quarter also came in ahead of Wall Street's estimates as Nvidia continues to defy the laws of gravity by capitalizing on the artificial intelligence (AI) boom.
Revenue rose 85% year-over-year (YOY) to $81.6 billion in Q1. For context, that is almost 10 times what Nvidia did in revenue in the corresponding quarter in fiscal 2023. It’s hard to think of a company that is growing at that pace on such a high revenue base. Meanwhile, just as the quarter had all the ingredients markets have grown used to from the chip giant over the past three years, the price action following the report was along the usual lines. NVDA stock closed almost 2% lower on May 21.
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In my pre-earnings analysis, I had noted that the sharp rally in Nvidia heading into the confessional lowered the probability of a major post-earnings rally. That said, I did expect the stock to close in the green following the report.
www.barchart.com Why Did Nvidia Stock Fall After Q1 Earnings?
I believe Nvidia fell following the Q1 earnings report for three key reasons.
The first reason, of course, is that a beat was already priced into NVDA stock. Investors expected something extraordinary from the company, which was absent in the earnings call. As analyst Jacob Bourne aptly put it, "Nvidia delivered another beat, but at this point that's essentially priced in as it keeps beating quarter after quarter.”
Secondly, there are recurring concerns over the sustainability of Nvidia’s growth, particularly as hyperscalers like Amazon (AMZN) and Alphabet (GOOGL) — which are among the company's biggest customers — build their own chips for in-house use as well as third-party sales. Incidentally, in its Form 10Q, Nvidia noted, “Some of our customers are developing their own ASICs and other products, including designs optimized for certain workloads that may not require all of the features and functionality our data center systems provide."
Finally, Nvidia's commentary on China was a bit pessimistic. Earlier this month, CEO Jenson Huang joined U.S. President Donald Trump's delegation to China, and reports followed that the company received approval to sell its H200 chips to 10 Chinese firms, including Alibaba (BABA). However, during the Q1 call, CFO Colette Kress said that while the U.S. government has approved licenses for H200 chips to China-based customers, the company is “uncertain whether any imports will be allowed into the country.” Speaking with CNBC, Huang admitted that Nvidia has “largely conceded” the AI chip market in China to Huawei.
How Did Analysts React to Nvidia's Earnings?
Analysts reacted to Nvidia’s earnings along similar lines, with multiple brokerages raising their price targets on NVDA stock. For example, Benchmark raised its target price from $250 to $335, while Evercore raised its target from $352 to $413. Argus also raised its target from $220 to $270.
Other analyst hikes were much more grounded and more or less incremental by Nvidia standards. However, Baird stood out as analyst Tristan Gerra raised his price target from $300 to $500. If Nvidia stock were to hit this mark, the company’s market capitalization would soar past $10 trillion. While that number would be astronomical, Nvidia’s rally over the last three years hasn’t been any different.
www.barchart.com Is NVDA Stock a Buy?
I am incrementally bullish on Nvidia stock following the Q1 report. The company’s business continues to do remarkably well, and it is gaining market share in inference. While there are concerns over revenue concentration as hyperscalers account for a large chunk of sales, the company’s non-hyperscaler business is growing faster. Signaling confidence in the non-hyperscaler business, Nvidia has started reporting its data center segment into two sub-markets: Hyperscale and AI Clouds, Industrial, and Enterprise (ACIE). Nvidia has also expanded its target market by another $200 billion with central processing units (CPUs) and expects $20 billion in revenue from CPUs this year alone.
Overall, while Nvidia may no longer have a home run in AI chips, the sheer growth in that market means that more players can coexist alongside the company. As for NVDA stock, shares should continue to reward investors, albeit not at the pace we have been used to over the last three years.
On the date of publication, Mohit Oberoi had a position in: NVDA , GOOG , AMZN . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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