Key Takeaways
- Nvidia topped Q1 expectations for both earnings and sales.
- While growth is still robust, the explosive beat rates are moderating.
- China restrictions squeezed profit margins this quarter.
- Demand for its AI chips remains incredibly strong globally.
- Analysts believe future growth expectations are now more aligned with performance.
Nvidia has once again delivered strong quarterly results, beating Wall Street’s forecasts for its first-quarter earnings and sales. The company reported an adjusted earnings per share of $0.81 on sales totaling $44.06 billion.
This marks the eighth consecutive quarter where Nvidia has surpassed expectations on both fronts. However, according to Investing.com, the extent of these beats is narrowing, suggesting analyst forecasts are catching up.
Earnings beat estimates by 9.5%, a solid figure but a slowdown from the over 40% beats seen in fiscal 2024. Sales exceeded predictions by a smaller 1.7%, its slimmest beat in recent years.
While growth rates remain stunning for a company of Nvidia’s massive $3 trillion-plus market capitalization, the pace is naturally slowing. The previous phenomenal growth of over 100% in sales was not expected to continue indefinitely at that level.
Profit margins saw a decline in the quarter. For instance, gross margins fell from 78% to 61%. This was attributed to a significant $4.5 billion impact stemming from restrictions on business in China.
Despite these margin pressures, Nvidia’s revenues over the last twelve months have now climbed to an impressive $148.5 billion.
Looking ahead, demand for Nvidia’s technology shows no signs of weakening. CEO Jensen Huang emphasized the “incredibly strong” global demand for AI infrastructure, comparing AI’s emerging role to essential utilities like electricity and the internet.
Huang noted that AI inference token generation has surged tenfold in just one year. He expects demand for AI computing to accelerate further as AI agents become mainstream, with Nvidia at the center of this transformation.
The company’s stock, which has significantly outperformed the S&P 500 over longer periods, is about even year-to-date. This shift may reflect the market adjusting to the more modest, though still healthy, beat rates.
The market is currently pricing in approximately 50% earnings per share growth and 44% sales growth for Nvidia over the next four quarters. Its forward price-to-earnings ratio stands at 29x, which, while above the S&P 500’s 22x, is supported by a much higher forward growth rate.
This reasonable valuation suggests the stock isn’t an overly “crowded trade.” The extraordinary stock surges of the past were fueled by results that massively exceeded expectations, forcing dramatic upward revisions in forecasts.
Nvidia remains a dominant force in the tech world, though it navigates an evolving landscape with its own set of challenges.
