Nvidia Posts Another Solid Quarter, but Beat Rates Come Back to Earth

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Nvidia Posts Another Solid Quarter, but Beat Rates Come Back to Earth

Nvidia (NASDAQ:) posted that beat street estimates on both sales and earnings. Adjusted EPS came in at $0.81 (not including write-offs for H20 charges) on sales of $44.06 billion.

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The company has beat on sales and EPS in each of the last 8 quarters.

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Earnings came in 9.5% above street expectations, its best beat rate in the last 5 quarters, compared to the beat rate of the S&P 500 of 6.5%. But still a significant slowdown from the 40%+ beat rate in fiscal 2024.

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Sales came in 1.7% above estimates, its smallest beat in years, compared to the sales beat rate of 0.9%. It’s clear that analyst expectations have been adjusted well.

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Growth rates are still stunning relative to any other company of their size ($3+ trillion market cap), but clearly slowing. No one should have expected 100%+ sales growth to continue.

Margins fell across the board (gross: 78% to 61%, operating: 65% to 49%, profit: 57% to 47%) due to the $4.5 billion impact from the China restrictions.

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Trailing twelve-month (revenues) have now soared to $148.5 billion. And still no issues with demand going forward:

“Global demand for NVIDIA’s AI infrastructure is incredibly strong. AI inference token generation has surged tenfold in just one year, and as AI agents become mainstream, the demand for AI computing will accelerate. Countries around the world are recognizing AI as essential infrastructure — just like electricity and the internet — and NVIDIA stands at the center of this profound transformation.” -Jensen Huang, founder and CEO of NVIDIA

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The stock retested the $142 level (red dotted line) which was the breakaway gap after the DeepSeek revelations on January 24th.

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The stock has outperformed the S&P 500 by a wide margin on every longer time frame, but year to date its about even. I believe this is a product of analyst expectations finally catching up (lower beat rates).

Looking ahead, the market is currently pricing in about 50% EPS growth and 44% sales growth over the next 4 quarters.

The forward PE now stands at 29x, compared to the 22x of the S&P 500. But the forward growth rate (50%) crushes the market average that is currently 7.2%.

Valuation isn’t a problem in the least bit. How can it be a crowded trade when the valuation remains this reasonable? That being said, the beat rates are now average. The reason why the stock took off like a rocket ship is because it came as a surprise to so many. Results obliterated expectations, and the whole set of forward estimates had to be adjusted dramatically higher.

It remains the best company in the world, although not without its share of challenges ahead.

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