Nvidia (NVDA) released its fiscal year 2026 earnings on Wednesday, February 25th after the markets closed. This was the “usual” report we have become accustomed to for the past three years. The company’s revenues and profits exceeded previous estimates, and it provided upbeat guidance that was better than Street estimates.
However, as is usually the case with NVDA, even the earnings report failed to lift the stock. While the shares were trading OK in the after hours on Wednesday, they closed up more than 5% on Thursday and another 4% on Friday but are recovering slightly in this morning’s trading session. Let’s examine this correlation between Nvidia’s strong earnings report and price action and analyze whether you should take the dip in NVDA.
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Nvidia’s revenue rose 73% year-over-year (YoY) in fiscal Q4 and 65% in the full year. For the current quarter, it is guiding for $78 billion in revenue at the midpoint, which was ahead of even the highest estimates and accelerated growth to 77%. Importantly, the directory does not accept any sales to China. While Nvidia’s margin reached 71.3% last fiscal year as it increased Blackwell production, the company expects the metric to be 74.9% at the midpoint in the current quarter.
While the markets sent NVDA stock south after the fiscal Q4 report, sell-side analysts weren’t worried and did pretty much the same thing they’ve been doing for the past few quarters—raising Nvidia’s target price. However, the magnitude of price increases is more moderate than in recent times.
Bernstein, Baird, and Bank of America raised their target prices from $275 to $300, while Citi raised its target from $270 to $300. Rosenblatt also raised his price target to $300 from $245, which was the highest increase in percentage terms from the major brokerages.
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While the reaction to Nvidia’s earnings wasn’t what one would expect after such a deadline, there are reasons why the markets reacted the way it did. First, the bar is always set high for Nvidia, and the markets are expecting more than just a little Beat the achievement From the world’s largest company.
Also, while the fiscal Q1 guidance was impressive and highly anticipated, it wasn’t entirely unexpected given the hyperscale spending that opened the purse strings for artificial intelligence (AI) capex like there’s no tomorrow.
Then there is the question of sustainability, which has persisted for some time, as the flow of AI spending, especially for hyperscalers, may not last forever, and investors no longer like their growing capex, as was well evident in recent earnings calls. Revenue concentration has been a concern for Nvidia, especially as some of its biggest customers are developing AI chips and looking for alternative suppliers to reduce their reliance on the company.
China remains a wild card for Nvidia, and there is considerable uncertainty about its prospects in the country, which was once its second-largest market after the US.
Nvidia tried to address some of these issues and highlight how its demand profile is diversifying as non-hyperscale purchases pick up. It also noted growth in autonomous AI, saying the business tripled to $30 billion last fiscal year.
It also discussed physical AI, saying it generated $6 billion in revenue last fiscal year. The company also highlighted the revenue opportunity from autonomous vehicles as companies from Tesla ( TSLA ) to Alphabet ( GOOG ) ( GOOGL )-backed Waymo and Uber ( UBER ) continue to scale robotics operations.
For a while now, I’ve been warning that investors should lower their expectations for NVDA stock and not expect it to keep doubling every year. However, I find Nvidia’s short-term risk-reward very attractive after the earnings selloff, and while there are real concerns about Nvidia’s earnings sustainability, at a forward price-to-earnings (P/E) multiple of 27.2x, I find a reasonable margin of safety in the stock.
Also, while other Super 7 peers are struggling to grow their bottom line largely due to the billions in high depreciation costs they spend on building AI infrastructure – most of which comes to Nvidia’s coffers – Nvidia’s revenue is expected to rise by nearly 60% this fiscal year, which gives it multiple times PG/EG (us-Eg). 0.58x As things currently stand, I don’t expect Nvidia to reach the $300 level anytime soon. However, the post-earnings selloff looks like a buying opportunity to me.
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At the time of publication, Mohit Oberoi held positions at: NVDA, GOOG, TSLA. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
