Nvidia’s Stock Climbs Despite Disappointing Forecast

In an environment of uncertainty and regulatory challenges, Nvidia Corp. (NASDAQ: NVDA) has demonstrated resilience, leading to a more than 4% rally in after-hours trading following its latest earnings report. The company showcased a robust business performance outside of China, which has contributed to its optimistic outlook regarding future growth opportunities.

Strong Fiscal Results Amid Challenges

Nvidia reported its fiscal first-quarter earnings, revealing a revenue of $44.06 billion—an impressive 69% increase compared to the previous year, albeit slightly below Wall Street’s expectations of $44.34 billion according to FactSet. The company faced significant headwinds due to recent U.S. export restrictions on its H20 product, impacting its ability to further capitalize on the lucrative Chinese market.

Export Restrictions Impact

CEO Jensen Huang acknowledged the challenges posed by the U.S. government’s latest export restrictions during the earnings call. He noted that Nvidia’s H20 product had already been modified for previous regulations, but no solution exists for the most recent restrictions. The company conducted $4.5 billion in inventory writedowns and reported a $2.5 billion revenue loss from its inability to ship H20 chips in the first quarter. Looking ahead, Nvidia anticipates an additional $8 billion in revenue losses for the second quarter.

Encouraging Future Projections

Despite these setbacks, Nvidia forecasts that its second-quarter revenue will be approximately $45 billion, plus or minus 2%. Analysts had initially projected $45.9 billion; however, given the anticipated $8 billion loss from China, the outlook still suggests the company is performing better than expected. Melius Research analyst Ben Reitzes pointed out that the revenue guidance highlights Nvidia’s ability to maintain a strong performance, excluding losses attributable to China.

Sources of Revenue Strength

Chief Financial Officer Colette Kress identified growth in the company’s Blackwell chip family as a critical driver of revenue. Huang also mentioned four positive factors mitigating the impact of China restrictions: increased demand for reasoning AI chips—models capable of problem-solving—an easement of the AI diffusion rule affecting exports to nations outside of China, a growing interest in enterprise-level AI agents, and advancements in industrial AI. Huang emphasized that AI is becoming a staple in factories globally, with new facilities being established.

A Healthy Business Resilience

While investors may not have received the substantial growth numbers they typically expect from Nvidia, the overall results were reassuring given the current regulatory environment. Thomas Martin, senior portfolio manager at Globalt Investments, noted the adjusted gross margin, which stood at 61%. Without accounting for the H20 writedown, this margin would have reached 71.3%, aligning with analyst expectations and hinting at a healthy underlying business despite challenges in China.

Valuation and Future Growth

From a valuation perspective, Nvidia’s forward price-to-earnings ratio is currently at 28.3, which is significantly lower than its five-year average of 40, according to FactSet. This compression of the P/E ratio reflects investors’ cautious outlook towards anticipated slowed growth. Nevertheless, Nvidia’s remarkable surge in revenue—126% growth in fiscal 2024, followed by 114% growth in fiscal 2025—has laid a strong foundation. Analysts expect the company to achieve growth rates of 53% and 24% for fiscal 2026 and 2027, respectively.

A Bright Future Amid Regulatory Headwinds

Overall, Nvidia appears to be transitioning toward a more sustainable, normalized growth rate, a sentiment echoed by Thomas Martin. While the exact growth trajectory remains uncertain, investors are evidently willing to bet on potential upside surprises and the transformative capabilities of AI development. As the company continues to navigate the challenges posed by export regulations and rapidly evolving technology landscapes, its strong performance outside of China positions it well for continued success in the future.

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Nvidia’s Stock Surges Over 4% as Strong Earnings Defy Export Challenges and Regulatory Uncertainty