Is Nvidia Stock A Buy Ahead Of Q1 Earnings?

Forbes

27-05-2025

Record revenue expectations underscore continued demand as Nvidia remains at the forefront of ... More next-gen computing.
Nvidia Corporation (NVDA) stands at a pivotal moment as it prepares to release its first-quarter fiscal 2026 earnings on May 28, 2025. The semiconductor giant has transformed from a gaming graphics company into the backbone of AI infrastructure worldwide. However, recent stock performance and mounting geopolitical challenges have investors questioning whether Nvidia remains a compelling investment opportunity.
This analysis examines Nvidia's year-to-date performance, key earnings metrics, macroeconomic headwinds and expert sentiment. With Wall Street projecting record revenue of $43.3 billion alongside a significant $5.5 billion writeoff related to China restrictions, the earnings report promises to be closely watched. Understanding these dynamics is crucial for investors considering their position before results are unveiled.
Nvidia's 2025 journey has been marked by volatility, with shares trading approximately 5% lower year-to-date as of late May. The year began with turbulence when Chinese startup DeepSeek released a cost-effective AI model that challenged Big Tech's AI infrastructure spending assumptions. This development and signals from Microsoft regarding potential slowdowns in AI data center investments created uncertainty about Nvidia's growth sustainability.
Geopolitical tensions have further complicated the stock performance under the Trump administration. Trade restrictions resulted in export bans on Nvidia's specialized chips to China, with CEO Jensen Huang acknowledging these policies cost the company approximately $15 billion in sales. The subsequent $5.5 billion write-off of H20 inventory designed for the Chinese market represents a tangible impact on Nvidia's financials.
Despite challenges, Nvidia maintains exceptional financial strength, with $38.5 billion in cash versus $8.5 billion in debt. Recent developments, including expansion into Saudi Arabia and the UAE and U.S. President Donald Trump's repeal of certain chip trade restrictions, have provided positive momentum. Options traders are pricing in potential movements of up to 7.4% following earnings, reflecting continued volatility expectations.
Nvidia's earnings will be scrutinized across multiple dimensions, with investors seeking insights into near-term performance and long-term positioning. The company has historically beaten quarterly guidance while providing forward estimates exceeding consensus. However, these "beat-and-raise" scenarios have become less dramatic as Wall Street caught up with Nvidia's trajectory.
The earnings call will be crucial for understanding how to navigate geopolitical challenges while capitalizing on AI demand. Supply constraints remain the primary U.S. growth limitation, while international expansion strategies are critical for offsetting substantial China revenue loss. CEO Jensen Huang's commentary on competitive positioning and customer diversification will provide vital future insights.
Wall Street projects record quarterly revenue of $43.3 billion for Q1 fiscal 2026, representing 66% growth versus $26 billion last year. While impressive, this means decelerating from the prior year's 262% revenue growth. Earnings per share are expected at $0.73, up from $0.61 year-over-year, with some analysts projecting adjusted EPS of $0.88, a 44% increase.
These projections must consider the $5.5 billion H20 inventory write-off impacting reported results despite underlying business strength. Historical data shows that Nvidia shareholders who purchased before earnings and held for 12 months achieved median returns of 120% over the past decade. However, as always, given evolving competitive and regulatory landscapes, past performance doesn't guarantee future results.
Data center revenue represents Nvidia's crown jewel, growing from $3 billion in fiscal 2020 to $115 billion in fiscal 2025. This segment exited recent quarters with $35.6 billion revenue and $142 billion annualized run rate. Morningstar models $40 billion for April 2025, but reduced July estimates from $44 billion to $37.6 billion due to China restrictions.
Supply constraints continue limiting Nvidia's demand fulfillment ability. Analysts expect incremental quarterly growth of approximately $4 billion through fiscal 2026, driven by additional supply and continued AI adoption. Growth sustainability depends on broader AI infrastructure investment trends and customer base diversification beyond hyperscale cloud providers.
AI demand remains Nvidia's fundamental growth driver, dominating GPU provision for AI training and inference workloads. The CUDA software platform creates significant switching costs, establishing competitive advantages beyond hardware. However, recent developments, including DeepSeek's model and scaling law debates, have introduced questions about AI investment sustainability.
Nvidia's unique position provides superior AI trend visibility across industries. The earnings call will reveal whether AI investment slowdown concerns are materializing or demand remains robust across customer segments and regions. Expansion beyond cloud providers into government and sovereign initiatives, particularly in the Middle East, could provide significant diversification benefits.
Nvidia's next-generation Blackwell architecture represents a critical future growth strategy, offering significant performance improvements over Hopper chips. Launch timing and execution face competitive pressure from semiconductor rivals and custom cloud provider chips. Early adoption, production schedules, and pricing will indicate Nvidia's ability to maintain technological leadership and premium positioning.
Blackwell's strategic importance extends beyond immediate revenue, demonstrating continued innovation and commitment to evolving AI workload requirements. Supply chain execution is critical, given that historical demand exceeds supply for new generations. Success could offset China revenue headwinds while reinforcing Nvidia's preferred AI infrastructure provider position.
The AI chip competitive landscape evolves rapidly, with major cloud providers investing in custom silicon while traditional semiconductor companies expand AI portfolios. Amazon's Trainium and Inferentia, Google's TPUs, and Microsoft/Meta design plans represent direct threats. AMD aggressively expands GPU lineups for cloud customers, while Intel develops AI accelerator products.
Nvidia's competitive strategy extends beyond hardware to software, networking and services, creating comprehensive ecosystems that are difficult to replicate. However, major customers' desire to diversify suppliers and reduce single-vendor dependence represents structural challenges. Maintaining the pace of innovation while preserving switching costs through software advantages will determine sustained market position and premium valuations.
U.S.-China geopolitical tensions represent the most significant macroeconomic headwind, with trade restrictions fundamentally altering Nvidia's addressable market. The Trump administration's export controls effectively blocked access to one of the world's largest AI markets. The $15 billion in lost sales represents just the beginning, as China's domestic semiconductor industry develops competitive alternatives like Huawei.
Broader trade tension implications extend beyond direct restrictions to supply chain vulnerabilities and technology transfer concerns. Given Taiwan tensions, Nvidia's TSMC reliance on advanced production creates additional geopolitical risk. Middle East expansion attempts to diversify geographically, but newer markets may not offset the Chinese business scale. Reciprocal tariff threats could impact broader technology sector sentiment.
Global economic conditions influence Nvidia through enterprise IT spending and AI startup venture capital impacts. Higher interest rates can reduce speculative AI investment appetite while slowing industry adoption. However, Nvidia shows remarkable economic cycle resilience, with AI infrastructure investment appearing relatively insensitive to traditional indicators. Well-capitalized customer bases provide some economic downturn insulation.
Morningstar assigns Nvidia a 3-star "fairly valued" rating based on a $125 fair value estimate, suggesting the current $132-135 trading represents a slight overvaluation. The analysis acknowledges the potential for a higher fundamental value if geopolitical concerns diminish or AI demand proves more durable. The wide economic moat rating reflects confidence in competitive advantages, while the "Very High" uncertainty rating acknowledges AI market nascency and geopolitical complications.
Wall Street sentiment remains generally positive despite challenges, with $43.3 billion consensus revenue projections showing continued growth confidence. However, decelerating growth rates and a focus on execution challenges suggest the "easy money" AI expansion phase may be ending. Analysts increasingly focus on navigating supply constraints, competitive pressures and geopolitical headwinds while maintaining premium pricing.
Market indicators suggest continued volatility, with options pricing implying significant post-earnings movement potential. Historically strong 12-month pre-earnings buyer returns provide long-term investor comfort, but changing competitive and regulatory environments may limit historical trend applicability. Given concentrated Nvidia holdings among major index funds, institutional investor behavior will be closely watched.
Bottom Line
Nvidia looks like a clear buy heading into earnings, with strong fundamentals, dominant AI leadership and the potential to outperform if growth holds steady. Record revenue expectations underscore continued demand, and despite its $5.5 billion China write-off, the company remains at the forefront of next-gen computing.
Still, risks remain. Geopolitical pressures, export restrictions and growing competition could affect future performance. While the stock appears reasonably valued, any upside will depend on Nvidia's ability to maintain its technological edge and weather a more complex global environment.