Chase the Surge in Nvidia Stock After Q1 Earnings?
Despite reporting mixed Q1 results Wednesday evening, Nvidia
NVDA stock has pooped as much as +6% in today's trading session and had retaken the top spot as the market's most valuable company ahead of Microsoft
MSFT.
Briefly hitting a market cap of $3.44 trillion, Nvidia's superior Blackwell series GPUs have powered its data center growth and AI factory build-outs, which are driving significant revenue for the chip giant. That said, let's see if the surge in NVDA will continue or if there are still better buying opportunities ahead.
Nvidia's Q1 Results
Enduring what it called a challenging operating environment, Nvidia's Q1 sales of $44.06 billion topped estimates of $42.91 billion and soared 69% from $26.04 billion a year ago. Data Center revenue was the main contributor, increasing 73% year over year to $39 billion.
However, Q1 EPS of $0.81 missed expectations of $0.85 despite spiking 33% from $0.61 a share in the prior period. Nvidia has surpassed sales estimates for a remarkable 25 consecutive quarters and his exceeded earnings expectations in three of its last four quarterly reports with an average EPS surprise of 3.87%.
H20 Headwinds
Watering down Nvidia's bottom line was the U.S. government's export controls on its H20 data center GPU, which is designed specifically for the market in China. While Nvidia was previously able to sell its H20 AI chips to China with no restraints, the Trump administration now requires a license to do so, leading to a $4.5 billion charge due to excess inventory and purchase obligations.
Nvidia hasn't publicly disclosed the exact cost of obtaining the license, but CEO Jensen Huang has criticized the export controls, stating they will weaken the U.S. chip industry and unintentionally strengthen Chinese competitors. Notably, Huang sees Huawei Technologies as a formidable AI rival and has pointed out that Tencent Holdings
TCEHY and other major Chinese tech companies are shifting toward domestic alternatives to power their AI endeavors due to restrictions on U.S. chip exports.
Nvidia's Revenue Guidance
For the second quarter, Nvidia expects Q2 sales to be $45 billion, plus or minus 2%. This falls within range of the current Zacks Consensus of $45.29 billion or 51% growth (Current Qtr below), and includes a projected loss in H20 revenue of approximately $8 billion.
Based on Zacks' estimates, Nvidia's total sales are expected to increase 49% in its current fiscal year 2026 to $194.7 billion from $130.5 billion in FY25. Furthermore, FY27 sales are projected to rise another 24%.
Conclusion & Final Thoughts
For now, Nvidia stock lands a Zacks Rank #3 (Hold). Seeing as NVDA has rallied nearly +30% in the last month, there could be better buying opportunities ahead, especially considering export headwinds to China.
Although Nvidia's data center growth is very appealing to investors, Jensen Huang has reiterated, that as one of the world's leading AI markets, China will be crucial to its global success, stating the platform that wins China is positioned to lead globally.
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