Nvidia wows Wall Street with a strong quarter, eye-popping sales forecast
Tech
Nvidia CEO Jensen Huang did it again. The AI chip powerhouse delivered better-than-expected quarterly revenue and earnings that more than doubled the year-ago period. Business is so strong that management felt comfortable enough to provide a financial outlook further into the future than ever before. Revenue in the company’s fiscal 2027 second quarter increased 106% to $96.22 billion, outpacing the $92.165 billion consensus, according to estimates compiled by data provider LSEG. Adjusted earnings per share (EPS) increased 128% to $2.46, also exceeding the LSEG consensus estimate of $2.10. NVDA YTD mountain Nvidia YTD Shares initially fell slightly on Wednesday evening’s print, but quickly reversed course and rose more than 4% once the post-earnings conference call started and CFO Colette Kress made clear that any disappointment the buy-side may have with these results is due to capacity constraints. Given the results, it’s clear that Nvidia’s stock is, as has been the case throughout its history, cheaper than it appeared on a forward earnings basis. We’re reiterating our buy-equivalent 1 rating and raising our price target up to $280 from $260. Bottom line Demand is not simply holding in; it’s accelerating, with topline growth accelerating for the fourth quarter in a row. Still, Wall Street appears to be greatly underestimating the size of the opportunity and the pace of AI adoption. It was this realization that flipped the stock as the call got underway, with Kress saying that the team expects fiscal 2028 revenue to increase 70% versus the current fiscal year 2027. Analysts were only expecting about 45% topline growth over the stretch. This is notable because of the magnitude of the upside in the forecast, and it’s the first time the team has ever guided a year in advance. That speaks volumes about the confidence the company has in its ability to make good on its forecasts. During the Q & A session, CEO Jensen Huang said, “Even though our demand is much greater than 70%, our supply allows us to confidently deliver 70%. And we’re going to continue to work with our supply chain to increase on that.” The gross margin outlook was a bit lower than expected, with Kress attributing the crunch to the relentless rise in memory prices, both for the remainder of this fiscal year and for fiscal 2028. The CFO expects memory prices to be even higher into next year — a negative for most companies but a boon to fellow Club name Micron, which saw its stock jump more than 3.5% in after-hours trading. Nvidia’s revenue upside, however, stands to more than make up for the memory squeeze. Come morning, expect a deluge of analysts to upwardly revise their earnings estimates. In addition to the results, Nvidia announced an expansion of its partnership with Amazon ‘s cloud unit. The expansion will see Amazon Web Services (AWS) deploy 2 million additional Nvidia graphics processing units (GPUs) in fiscal years 2027 and 2028. AWS will also install Vera central processing units (CPUs), both as part of larger Rubin systems and on a standalone basis. Kress said, “Amazon will also adopt [Nvidia’s] full physical AI stack, Omniverse, Cosmos, Isaac, and Jetson to power its fleet of warehouse robots.” Why we own it Nvidia’s graphics processing units (GPUs) are the key driver behind the AI revolution, powering the accelerated data centers being rapidly built around the world. The company’s chips, including central processing units (CPUs), are part of a platform that includes the hardware and software needed to power AI workloads. Competitors : Advanced Micro Devices , Intel , Broadcom , and custom AI chips (from the likes of Alphabet ‘s Google and Amazon ) Most recent buy : Aug 31, 2022 Initiation : March 2019 A lot of attention has been on Nvidia’s capital returns to shareholders. During the quarter, the company returned a record $26 billion to shareholders via buybacks and dividends. While already committed to returning 50% of free cash flow to investors via dividends and buybacks, Kress said, “We have returned 60% on a year-to-date basis — and going forward, we intend to increase and return excess free cash flow, net of strategic uses.” That’s a step in the right direction as far as we’re concerned, because Jim Cramer has been after Nvidia to institute an Apple-style stock repurchase strategy. Alongside earnings back in May, Nvidia announced an $80 billion buyback authorization and a quarterly dividend increase to 25 cents per share from 1 cent. Financial commitments In the earnings release, Nvidia provided an update on the $366 billion in financial commitments that it has made through agreements, partnerships, and investments. The company said, “We’ve partnered with our extensive network of suppliers to secure the critical components needed to meet demand for the next several years. Our commitments increased from $119 billion last quarter to $279 billion, primarily related to the procurement of memory.” Cloud service agreements totaled $29 billion, with data center leases not commenced of $25 billion, equity investments of $25 billion, and capital expenditures of $8 billion. Nvidia said, “Securing land, power and shell for data centers has become the next critical phase in the AI infrastructure buildout,” with $56 billion committed there. The company has also agreed to provide $105 billion in financing for a massive data center project in Ohio, where ChatGPT creator OpenAI will be the tenant via a 20-year lease, and $3.5 billion to land, power, and shell guarantees for AI clouds. Adding it all up, we’re looking at commitments of about $530.5 billion. That certainly isn’t nothing but given the demand we’re seeing for AI and the free cash flow Nvidia stands to generate in the years ahead, we think it is perfectly manageable. Kress defended the merits of the company’s investments. “We know some will call this circular financing. We see it differently.” She added, “We believe these investments, measured against the strength of their demand. The business they create for us, the ecosystem they build on. Nvidia’s platform, and the equity returns on invested capital will be excellent. And our risk is limited.” Quarterly commentary Data Center segment revenue for the quarter was $89.02 billion, well ahead of estimates of $86.3 billion. That was up 117% year over year and 18% sequentially. (As a reminder, Nvidia changed its reporting framework last quarter to better show its current and future growth drivers.) There are two sub-segments within Data Center. Hyperscale sales, which are from public clouds and the world’s largest consumer internet companies (like Amazon, Microsoft , Meta Platforms , and Alphabet ), doubled to a better-than-expected $48.7 billion. On the call, Kress said, “With cloud industry backlog now greater than $2 trillion, capex by the top five hyperscalers is expected to reach nearly $800 billion in 2026 and $1.3 trillion in 2027.” AI Clouds, Industrial, & Enterprise (ACIE) sales are from AI purpose-built data centers and AI factories across industrials and countries. Revenue here was $40.3 billion. While that does represent 138% year-over-year growth, the Street was looking for more. On the call, Kress said, “Growth was driven by neo cloud capacity additions to meet the rising demand from enterprises, AI startups, and sovereigns; as well as hyperscalers purchasing capacity to supplement their own build-outs.” Sales in the Edge Computing segment include many of Nvidia’s legacy parts — we’re talking about devices for agentic and physical AI, including personal computers (PCs), game consoles, workstations, robotics, automotive, and the so-called AI radio access network . Segment revenue totaled $7.2 billion, up 27% year over year and comfortably ahead of expectations. Similar to the dynamic from the previous quarter, Blackwell workstation demand remains strong, though is being partially offset by lower PC demand due to high memory prices driving up the cost to the consumer. While gross margin of 75% was a tick lower than expected, the result nonetheless represents 250 basis points, or 2.5 percentage points, of year-over-year expansion, with the team attributing that enhanced profitability to a higher mix of Blackwell Ultra sales. Guidance Looking ahead to Nvidia’s current fiscal 2027 third quarter, management’s outlook was strong on the top line, but missed the mark on gross margins, as we mentioned earlier. The company expects revenue of $108 billion, plus or minus 2%, ahead of the $104.2 billion LSEG consensus estimate. Keep in mind, guidance continues to reflect zero data center compute revenue from China; so if sales were to ever restart there, it would be pure upside. But again, we don’t expect that to happen soon. Adjusted gross margins are expected to be 74%, plus or minus 50 basis points, below the 75.1% estimate compiled by FactSet. On the call, Kress cited the rise in memory prices, forecasting a gross margin drop to 71% to 72% in fiscal Q4, rebounding to about 72% to 73% in fiscal 2028. The Street was looking for 74.9% in the fiscal fourth quarter and 74.9% in fiscal 2028. (Jim Cramer’s Charitable Trust is long NVDA, AMZN, META, MSFT, META. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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Nvidia wows Wall Street with a strong quarter, eye-popping sales forecast
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