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Nvidia NVDA is set to release its first-quarter 2026 earnings report on May 28. Here’s Morningstar’s take on what to look for in Nvidia’s earnings and stock.
China, tariffs, and geopolitics are at the forefront.
Nvidia announced a $5.5 billion writeoff of H20 inventory for artificial intelligence chips targeted for China, as subsequent US restrictions have blocked Nvidia’s sale of these parts. We’ll be seeking insight into Nvidia’s revenue headwind from lost China business, as well as next steps (if any) to salvage any China business going forward.On the other hand, the US deals with Saudi Arabia and the UAE should boost AI spending in the years ahead, and we’ll seek insight into these new developments as well.
Investors will still seek a beat-and-raise quarter.
Nvidia has been on a healthy streak of reporting results ahead of its quarterly guidance while providing guidance for the upcoming quarter ahead of FactSet consensus estimates, although such “beats” are less impressive than they were at the dawn of AI a couple of years ago. Consensus estimates appear to have caught up with Nvidia’s growth.Supply constraints remain the cap on Nvidia’s earnings in the United States, while we’ll seek insight into China revenue and the future headwinds that may arise due to even tighter restrictions.
Nvidia has the best view of AI.
DeepSeek and the rumored end of scaling laws were two technology-related developments that brought some doubt into Nvidia’s prospects a quarter ago. Neither appear to be a severe headwind to date. We don’t anticipate any new technology developments as putting Nvidia’s quarterly revenue at risk, but we think Nvidia sees where “the puck is going” better than any other AI firm, so we’ll appreciate their insights.
We have a $125 fair value estimate and wide moat rating for Nvidia.
We don’t see any risk to Nvidia’s moat at the moment.We have a very high fair value uncertainty rating for Nvidia, as generative AI is still in its relative infancy and geopolitics muddy the picture a bit.At $135, shares appear slightly overvalued to us, but acknowledge that there might be more fundamental upside to Nvidia if China becomes less of a concern and/or we foresee brighter AI demand in the US and elsewhere in the long term.
Nvidia Stock Price
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Fair Value Estimate for Nvidia
With its 3-star rating, we believe Nvidia’s stock is fairly valued compared with our long-term fair value estimate of $125 per share, which implies an equity value of roughly $3 trillion. Our fair value estimate implies a fiscal 2026 (ending January 2026 or effectively calendar 2025) price/adjusted earnings multiple of 32 times and a fiscal 2027 forward price/adjusted earnings multiple of 26 times.
Our fair value estimate, and Nvidia’s stock price, will be driven by its prospects in the data center, or DC, and AI GPUs, for better or worse. Nvidia’s DC business has achieved exponential growth already, rising from $3 billion in fiscal 2020 to $115 billion in fiscal 2025. DC revenue remains supply-constrained and near-term revenue will rise as more supply comes online. DC revenue exited fiscal 2025 at $35.6 billion in the January 2025 quarter and a $142 billion annual run rate. We model $40 billion of revenue in the April 2025 quarter, in line with guidance, but we reduce our July 2025 quarterly estimate from $44 billion down to $37.6 billion as Nvidia has been blocked from selling its H20 GPUs into China. Thereafter, we model incremental quarterly revenue growth of about $4 billion per quarter in the October 2025 and January 2026 quarters, as we expect additional chip supply to come online to satisfy insatiable AI demand.
Read more about Nvidia’s fair value estimate.
Economic Moat Rating
We assign Nvidia a wide economic moat, thanks to intangible assets around its graphics processing units and, increasingly, switching costs around its proprietary software, such as its Cuda platform for AI tools, which enables developers to use Nvidia’s GPUs to build AI models.
Nvidia was an early leader and designer of GPUs, which were originally developed to offload graphic processing tasks on PCs and gaming consoles. Nvidia has emerged as the clear market share leader in discrete GPUs (over 80% share, per Mercury Research). We attribute Nvidia’s leadership to intangible assets associated with GPU design, as well as the associated software, frameworks, and tools required by developers to work with these GPUs. Recent introductions, such as ray-tracing technology and the use of AI tensor cores in gaming applications, are signs, in our view, that Nvidia has not lost its GPU leadership in any way. A quick scan of GPU pricing in both gaming and data center shows that Nvidia’s average selling prices can often be twice as high as those from its closest competitor, Advanced Micro Devices AMD.
Read more about Nvidia’s economic moat.
Financial Strength
Nvidia is in outstanding financial health. As of October 2024, the company held $38.5 billion in cash and investments, as compared with $8.5 billion in short-term and long-term debt. Semiconductor firms tend to hold large cash balances to help them navigate the cycles of the chip industry. During downturns, this provides them with a cushion and flexibility to continue investing in research and development, which is necessary to maintain their competitive and technology positions. Nvidia’s dividend is virtually immaterial relative to its financial health and forward prospects, and most of the firm’s distribution to shareholders comes in the form of stock buybacks.
Read more about Nvidia’s financial strength.
Risk and Uncertainty
We assign Nvidia an Uncertainty Rating of Very High. In our view, Nvidia’s valuation will be tied to its ability to grow within the data center and AI sectors, for better or worse. Nvidia is an industry leader in GPUs used in AI model training, while carving out a good portion of demand for chips used in AI inference workloads (which involves running a model to make a prediction or output).
We see a host of tech leaders vying for Nvidia’s leading AI position. We think it is inevitable that leading hyperscale vendors, such as Amazon’s AWS, Microsoft, Google, and Meta Platforms will seek to reduce their reliance on Nvidia and diversify their semiconductor and software supplier base, including the development of in-house solutions. Google’s TPUs and Amazon’s Trainium and Inferentia chips were designed with AI workloads in mind, while Microsoft and Meta have announced semiconductor design plans. Among existing semis vendors, AMD is quickly expanding its GPU lineup to serve these cloud leaders. Intel also has AI accelerator products today and will likely remain focused on this opportunity.
Read more about Nvidia’s risk and uncertainty.
NVDA Bulls Say
Nvidia’s GPUs offer industry-leading parallel processing, which was historically needed in PC gaming applications, but has expanded into crypto mining, AI, and perhaps future applications too.Nvidia’s data center GPUs and Cuda software platform have established the company as the dominant vendor for AI model training, which is a use case that should rise exponentially in the years ahead.Nvidia is expanding nicely within AI, not just supplying industry-leading GPUs but also moving into networking, software, and services.
NVDA Bears Say
Nvidia is a leading AI chip vendor today, but other powerful chipmakers and tech titans are focused on in-house chip development.Although Cuda is a leader in AI training software and tools today, leading cloud vendors would likely prefer to see greater competition in this space and may shift to alternative open-source tools if they were to arise.Nvidia’s gaming GPU business has often seen boom or bust cycles based on PC demand and, more recently, cryptocurrency mining.
This article was compiled by Gautami Thombare.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.