Nvidia NVDA released its fiscal first-quarter earnings report on Feb. 26. Here’s Morningstar’s take on Nvidia’s earnings and stock.
Key Morningstar Metrics for Nvidia
- Fair Value Estimate: $130.00
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Very High
What We Thought of Nvidia’s Earnings
We maintain our $130 fair value estimate for Nvidia, as the company reported another quarter of strong results while providing guidance that exceeded FactSet consensus estimates. Shares appear fairly valued to us as we think the market is pricing in both the tremendous potential for Nvidia’s artificial intelligence solutions and the risk of slower spending on such products beyond calendar 2025.
Revenue in the January quarter was $39.3 billion, up 12% sequentially, up 78% year over year, and ahead of guidance of $37.5 billion and FactSet consensus estimates of $38.1 billion. Data center revenue is still the once-in-a-generation growth driver for Nvidia, up 93% year over year. Revenue from new Blackwell products was $11 billion and exceeded management’s expectations. Adjusted gross margin came in at 73.5%, down 150 basis points sequentially but in line with guidance due to higher costs associated with new Blackwell products.
Nvidia expects April-quarter revenue to be $43 billion, which would be up 9% sequentially, up 65% year over year, and ahead of FactSet consensus estimates of $42.1 billion. Despite the selloff in late January associated with the emergence of DeepSeek, we still see no meaningful signs that data center demand is waning in the near-term, and we’ve been encouraged with the capital expenditure plans of cloud computing leaders for the upcoming year. We still suspect that Nvidia will sell virtually everything it can make in calendar 2025. The only blemish we saw within these results was the forecast for first-quarter adjusted gross margin to come in at 71%, implying another sequential decline due to the Blackwell ramp, although we’d be impressed if management can achieve its target to reach the mid-70% range later this year.
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 $130 per share. This fair value estimate implies an equity value of roughly $3.2 trillion. Our fair value estimate implies a fiscal 2026 (ending January 2026 or effectively calendar 2025) price/adjusted earnings multiple of 29 times and a fiscal 2027 forward price/adjusted earnings multiple of 24 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 incremental quarterly revenue growth of about $4 billion per quarter in fiscal 2026, which brings our fiscal 2026 DC revenue estimate to $183 billion. We then model 21% growth to $222 billion in fiscal 2027, and 12% growth to $249 billion in fiscal 2028, resulting in a 29% CAGR from fiscal 2026 to fiscal 2028.
Read more about Nvidia’s fair value estimate.
Nvidia Stock vs. Morningstar Fair Value Estimate
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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.
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Financial Strength
Nvidia is in outstanding financial health. As of October 2024, the company held $38.5 billion in cash and investments, 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 gives them 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.
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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 will seek to reduce their reliance on Nvidia and diversify their semiconductor and software supplier base, including the development of in-house solutions. Among existing semis vendors, AMD is quickly expanding its GPU lineup to serve these cloud leaders. Intel INTC 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 Aman Dagra.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
