Nvidia is slated to beat this quarter and raise again next quarter. Capacity is increasing for Hopper and demand remains elevated.
Analysts are expecting demand for Hopper to absorb any minimal impact pushing Blackwell to Q1 will cause. It’s likely the B100s are canceled, which is the release that was expected this year. We wrote about why this could ultimately be bullish, if we assume the GB200s are oversubscribed. We believe the Blackwell delay will ultimately be immaterial to FY2026 revenue, and the point of last week’s analysis is there’s a much bigger picture to focus on.
With that said, I’m not loving Nvidia’s valuation. Nvidia is trading at its highest levels since the AI accelerator boom was priced in. We’ve seen some blow-the-doors off quarters during the period reflected below — which pushes back on the idea a beat/raise justifies this valuation. The big spikes downward are fiscal year adjustments, meaning if an investor feels compelled to buy at a high valuation, it’s better to do so in Dec/Jan than August.
Here’s a bottom-line valuation that reflects 50 forward PE being a psychological hurdle since Jan 1, 2023, the period where we saw AI-driven beats/raises.
Where things get complicated is the FY2026 revenue estimates are simply too low. They are at $165B and the I/O Fund believes we will see $210B (or more) this time next year. That should create about 27% room. However, FY2026 is a ways off, as it begins nearly seven months from now in February. Therefore, Q4 offers a better risk/reward setup where we’d enter based on our understanding of the 27% upside that next fiscal year will bring.
Notably, to be balanced, this earnings report marks the moment when profits are expected to plateau (as opposed to skyrocket) and margins will slightly contract for the first time since Nvidia’s big AI moment.
I want to be crystal clear that I foresee Nvidia being the strongest mega cap stock for the next decade. Trading in this case sometimes does not work as emotions run high when stocks selloff, and some investors struggle to buy back when the market is in a state of fear (versus greed).
However, the I/O Fund is an actively managed portfolio, and so our style is distinct. The facts below point toward us trimming our position and attempting to buy again lower. Keyword is “attempt.” Knox’s webinar this week is quite timely, being the first trading day after Nvidia reports. You can expect him to spend considerable time on this chart to inform our Members of our plan. He also briefly described the general outline here for Essentials.
Revenue and Financials:
Revenue for the July quarter is expected to be $28.7 billion for growth of 112.6%. Management provided guidance of $28 billion for YoY growth of 107.3% at the midpoint. Q3 is expected to be $31.7 billion for growth of 74.8%.
Pictured Above: Nvidia reported peak growth in Q4 & Q1 and revenue will decline moving forward. Our firm covered this previously here.this previously here.
FY2025 Revenue growth is expected to be $121.3 billion for growth of 99.03%. Next year, growth is expected to be 38.7% for revenue of $168.2 billion.
We discussed earlier this year that Nvidia was hitting peak growth. Blackwell’s GB200 are the predominant catalyst for next year, along with an ongoing, rapid product release cycle.
Key Segments:
The data center revenue reported revenue of $22.5 billion, up 427% YoY and up 23% QoQ. Analysts are expecting between $105B and $107B in annual data center revenue.
This is what a rough idea looks like (back of the napkin math)
- Q1 at $22.5B (reported)
- Q2 at $25.5B – adding $3B
- Q3 at $28.0B – adding $2.5B
- Q4 at $30.0B – adding $2.0B
The chances Nvidia beats are high, for example: “Jefferies expects another "strong beat in July and strong guidance into October" from Nvidia with beats of about $1B for both results and guide.
Citi has also stated: “The firm sees $1B of upside to Street sales estimates but below the $2B beat in the last four quarters based on supply chain comments and Blackwell delay concerns. Citi expects Street estimates to go higher for the next two quarters post the earnings print and for Blackwell comments to reassure investors on a strong 2025 outlook for Nvidia.”
Margins:
You can read more about the importance of HBM3e and its integration into the H200s here.more about the importance of HBM3e and its integration into the H200s here.
This quarter, the H200s shipped with HBM3e memory, which are higher priced memory components that require a re-configuring of the pricing for Nvidia’s GPUs, and subsequently may also be affecting margins.
Back in February, Next Platform did a thought exercise to predict HBM3 represented $8,800 of the GPU price and HBM3e will represent $16,500 of the street price (Nvidia will pay a lower amount) if the H200s are priced at $41,000. Nvidia will push some of the costs onto the buyers, yet there is bound to be questions in the call to determine how these higher priced components are affecting margins. As of now, we are seeing some reports the H200s cost $39,900.
Notably, this quarter Nvidia is showing signs of plateauing on profit growth. We’ve seen historic quarter-over-quarter growth where Nvidia adds about $3 billion QoQ in profits. Yet, management is guiding for roughly flat QoQ growth, and in the case of net income, a nominal decline. This is a different discussion than YoY growth, which is quite high on profits, at well over 100%.
Gross margin last quarter was 78.4% and management has guided for a decline to 74.8%. The adjusted gross margin of 75.5% will also be lower than last quarter’s at 78.9% for adjusted gross profit of $21.14B. Last year, the adjusted gross margin was 71.2% for a 430 bps expansion YoY.
Management guided for GAAP operating margin to be 60.5% compared to 64.9% last quarter. The adjusted operating margin is expected to be 65.5% for adjusted operating income of $18.3 billion. The adjusted operating margin last year was 57.57% for a 293 bps expansion YoY.
Pictured above: Nvidia expected to report a decline in margins with last quarter marking the peak
Management guided for GAAP net margin of 51.1% for net profit of $14.3 billion. This will be lower than last quarter at 57.1% for net income of $14.8 billion. Yet, is up from 45.8% last year.
Nvidia is expected to report EPS of $0.64 for YoY growth of 137.8%. The company reported adjusted EPS of $0.61 last quarter for growth of 461.5%. Q3 is expected to report EPS of $0.71 for YoY growth of 76.8%.
FY2025 EPS is expected to be $2.75 representing growth of 111.8%. FY 2026 is expected to be $3.83 representing growth of 39.4%.
Cash:
Last quarter, the company report operating cash flow of $15.3 billion for a margin of 58.9%. The free cash flow margin of 57.3% resulted in FCF of $14.9 billion. The company has $31.4 billion on the balance sheet with debt of $9.71 billion.
The company utilized cash of $7.8 billion towards shareholder returns with $7.7 billion in stock repurchases and $98 million in cash dividends. The shares started trading on a 10-for-1 stock split basis on June 10th.
Conclusion:
Our process is to not become complacent around valuations. We closed heavyweight Microsoft on these concerns and closed best-of-breed CrowdStrike on valuation concerns.
We will notnot be closing Nvidia by any meansany means, but we do think a position that is 20%+ allocation and trading at a high valuation may have a mid-single digit to high-single digit trim in its allocation in order. Blackwell is coming, but it’s not here yet — we’ve got time.
Please note: Our style is (and should be) distinct from your style. We are not financial advisors and what is best for the I/O Fund may not be best for you. Per our terms and conditions, please consult your financial advisor before making any decisions.our terms and conditions, please consult your financial advisor before making any decisions.
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