Nvidia’s done it again. They delivered another monster earnings report for the first quarter of this year. Revenues were an enormous $44.06bn of revenue for last quarter, beating estimates of $43.2bn, earnings per share also beat estimates at $0.96, vs. $0.93. Net income was slightly below expectations at $19.89bn, however, Nvidia is the ultimate growth company, risk sentiment has jumped in post market trading, so this has been well tolerated by the market.
Nvidia’s China hit barely visible in earnings data
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Create account Try a demo Download mobile app Download mobile appThe market also wanted to hear about how the US’s ban on most chip exports to China is impacting revenue. The hit to Nvidia’s revenue is huge: the company said that it will hurt revenue in the current quarter to the tune of more than $8bn, more than double what was expected. There was also an impact on last quarter, export restrictions to China meant that Nvidia was unable to ship an extra $2.5bn of H20 chips.
Export restrictions are costing Nvidia a chunk of change, however, demand for their chips are so strong that it is not stopping extraordinary revenue growth for the company. For example, even though Nvidia is expecting to sacrifice more than $8bn in revenue in Q2 due to export restrictions to China, the company is still forecasting revenues to grow to $45bn +/- 2%. This exceeded expectations, and even with barriers to revenue potential in China, Nvidia is proving that it can still generate formidable growth.
Nvidia: still dependent on the hyper scalers
Gross margin for last quarter was 61%, however, if you excluded the hit from Chinese demand, then gross margins would be 71.3%. This is an astonishing development, and highlights Nvidia’s dominance in the AI revolution. We knew coming into this earnings report that Nvidia’s biggest customers, including Microsoft and Meta, are still investing in AI, which bodes well for Nvidia.
It’s healthy revenue forecast also suggests that demand for Nvidia’s most advanced, and most expensive Blackwell chip is robust. The company gave guidance that its most advanced Blackwell chip, the Blackwell Ultra, will begin shipping in the current quarter. This is likely to help boost revenue forecasts and margins in the coming months.
Nvidia placates President Trump as demand rises in the Middle East
The company’s forward guidance was worth noting. It included a nod to President Trump, which included plans to build factories in the US, and to produce super computers in the US. They also unveiled the Stargate UAE project, which is an AI infrastructure cluster in Abu Dhabi, in the UAE. There were no other updates about this project, and we do not know if it can make up for losses in China. However, considering it was too soon to generate revenue from its Middle East projects, and the revenue loss from China, Nvidia’s growth for last quarter was even more impressive. Nvidia said that more than half of its customer base is the major tech hyper-scalers. Investors would like to see this number come down, but for now, they can make up for weakness in the China market, and that is boosting revenue growth and keeping margins extremely healthy.
China challenge remains for the chip companies
While Nvidia was able to moderate the impact from China sales last quarter, political challenges to global trade could disrupt Nvidia’s business in the future. The company said that it may not be able to create a competitive product for the China market. They also said that foreclosure from the Chinese market would materially hurt the business. Jensen Huang also said that export restrictions to China could threaten US leadership in the AI space, as China develops its own chips. However, the surge in the share price on Wednesday night, at the time of writing it was higher by more than 4%, suggests that this is not a problem for today.
The potential for juicy shareholder returns boost the share price
Nvidia is also building a massive cash pile, it was $53.7bn last quarter, up from $31.4bn a year ago. This could also be fueling the share price rally in post market trading, for two reasons. 1, it opens the possibility for juicer shareholder returns in the future, 2, it gives the company flexibility to adjust to a world where Nvidia cannot operate in China, which includes building new products. Nvidia has been blocked from making large purchases, including buying Arm, which makes the prospect of share buybacks a big possibility for the future. For now, the company has stuck with its meagre dividend of $0.01 per share.
The average move higher in Nvidia’s share price 1 day after an earnings report is more than 8.5% over the last 8 quarters. Thus, it could be a big day for Nvidia on Thursday, and we may see a big move higher across global tech stocks. AI linked stocks, including high bandwidth memory chip maker HBM are also surging in the post market, SK Hynix is also worth watching during the Asian session.
Overall, this is a huge step for Nvidia, as the stock surges through the February highs, back towards the all-time highs from early January when the stock reached $153. The sell off earlier this year looks like a distant memory.
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