Morningstar

Nvidia Earnings: Raising Fair Value as AI Buildouts are Accelerating

The showstopper, in our view, was Nvidia’s stunning forecast of 70% revenue growth next year.

The Nvidia logo is displayed on headquarters.
Justin Sullivan via Getty
Securities in This Article
NVIDIA Corp
(NVDA)

Key Morningstar Metrics for Nvidia

  • Fair Value Estimate
    : $310
  • Morningstar Rating
    : ★★★★
  • Morningstar Economic Moat Rating
    : Wide
  • Morningstar Uncertainty Rating
    : Very High

What We Thought of Nvidia’s Earnings

Nvidia NVDA reported fiscal second-quarter revenue of $96 billion, up 106% year over year and ahead of guidance of $91 billion. Nvidia expects October-quarter revenue of $108 billion, up 89% year over year and ahead of FactSet consensus estimates of $105 billion.

Why it matters: The showstopper, in our view, was Nvidia’s stunning forecast of 70% revenue growth next year (fiscal 2028), implying close to $700 billion in total revenue versus our prior estimates and FactSet consensus estimates of around $570 billion.

  • Nvidia said this 70% growth rate is supply constrained, meaning its forecast could be conservative if its suppliers expand faster than anticipated. Given Nvidia’s view into artificial intelligence demand and its consistent “beat-and-raises,” we think this forecast will prove to be conservative.
  • The only blemish to the earnings report was Nvidia’s reset on gross margin, forecasting a decline from 75% in the July quarter to 74% in October, 71.5% in January, and 72.5% for fiscal 2028, due to the sharp rise in memory prices, which are key components in Nvidia’s AI racks.

The bottom line: We raise our fair value estimate for wide-moat Nvidia to $310 from $280 as demand for Nvidia’s industry-leading AI gear will likely be higher for longer. Shares rose 4% on the news but still appear undervalued to us, as the market appears skeptical about future AI spending.

  • Nvidia forecasted that its top five US hyperscaler customers will spend $1.3 trillion on AI capital expenditures next year, whereas we think the market was estimating $1.0 trillion, and perhaps less. We’re amazed that AI demand has yet to peak but is instead accelerating.
  • AI token usage is still rising exponentially, and high GPU rental prices suggest the market for AI accelerators, such as Nvidia’s GPUs and rack-scale solutions, remains a constraint for AI labs.

Big picture: We were also pleased with Nvidia’s disclosures and rationale across a variety of commitments and guarantees.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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