Nvidia tops Q1 revenue estimates but profit misses

Nvidia reported Q1 revenue of $44.1 billion, a 69% increase year-over-year and above estimates, driven by a 73% surge in data center revenue to $39.1 billion. However, adjusted EPS of $0.81 missed estimates of $0.93, and adjusted gross margin was 61%, below the expected 71%, impacted by $2.5 billion in lost H20 chip revenue due to export controls. Despite these headwinds, Nvidia projects Q2 revenue of $45 billion, plus or minus 2%, and CEO Jensen Huang announced the Blackwell NVL72 AI supercomputer is now in production, leading to a 3.5% after-hours share price increase.

Analysis

Nvidia Corp. (NVDA) reported robust first-quarter revenue of $44.1 billion, a significant 69% year-over-year increase that surpassed analyst consensus of $43.29 billion. This top-line strength was primarily fueled by a 73% surge in its data center segment, which reached $39.1 billion, underscoring sustained, strong demand for its AI-enabling chips. However, profitability metrics fell short of expectations; adjusted earnings per share came in at $0.81, below the $0.93 consensus estimate, and the adjusted gross margin was 61%, significantly under the anticipated 71%. This margin compression was directly attributed to US export restrictions on its advanced H20 chips, which prevented $2.5 billion in H20 chip revenue in Q1 and are projected to reduce expected H20 sales by $8 billion in the second quarter. Despite these headwinds, Nvidia issued strong Q2 revenue guidance of $45 billion (plus or minus 2%). This outlook, combined with CEO Jensen Huang's announcement that the new Blackwell NVL72 AI supercomputer is now in production, was interpreted bullishly by investors, leading to a 3.5% increase in NVDA's share price in after-hours trading, signaling confidence in the company's continued growth trajectory and AI market leadership despite geopolitical and regulatory challenges.

Key Decisions for Investors

• Investors should acknowledge Nvidia's sustained top-line momentum and strong forward guidance, driven by robust AI demand, which currently overshadows near-term profitability pressures.
• Careful monitoring of the gross margin impact from US export controls and the specific performance of H20 chip sales is warranted, as these factors represent a key risk to profitability despite the company's overall positive outlook.
• The market's positive reaction to Q2 guidance and the Blackwell NVL72 production update suggests an appetite for Nvidia's long-term AI narrative; however, positions should be managed considering the ongoing geopolitical friction impacting a segment of its sales.