NVIDIA's Earnings Beat Expectations, AI Hardware Leadership Continues

Overview

Morgan Stanley’s report highlights that NVIDIA’s latest quarterly results significantly exceeded expectations, with both revenue and profits notably surpassing market consensus and prior forecasts. The company has further solidified its leadership in the AI chip segment, particularly as the Vera Rubin chip progresses smoothly, expected to continue driving market share gains and profitability. The report maintains an 'Overweight' rating and raises the target price from $285 to $288.

Core views

NVIDIA reported quarterly revenue of $81.615 billion, up 19.8% quarter-over-quarter and 95.1% year-over-year, significantly exceeding the market expectation of $78.907 billion. Data Center revenue reached $75.249 billion, up 20.8% QoQ and 92.4% YoY. Non-GAAP EPS was $1.87, also beating market expectations. The report emphasizes that despite intense competition, NVIDIA continues to maintain a cost advantage through effective supply chain management and technological innovation. The upcoming Vera Rubin chip will further strengthen its leadership in AI computing, especially offering significant advantages in per-token cost efficiency. Additionally, the company announced a $1 billion share repurchase program and raised its annual dividend to $1, reflecting management’s confidence in future growth. Morgan Stanley has raised its revenue and profit forecasts for NVIDIA over the next few years. Fiscal 2027 revenue is now projected at $393.005 billion, up 82.0% YoY; fiscal 2028 revenue is forecast at $598.809 billion, up 52.4% YoY. Corresponding non-GAAP EPS estimates have been revised upward to $8.98 and $13.15, respectively.

Analysis framework

The report employs a combined quantitative and qualitative analytical approach. First, it conducts a detailed breakdown of financial data to confirm that NVIDIA outperformed expectations across revenue, gross margin, and profitability. Second, it evaluates NVIDIA’s competitiveness in the AI chip market by integrating industry trends and technological developments, particularly focusing on the technical merits and market potential of the Vera Rubin chip. Finally, by comparing valuation metrics against peers, the report confirms that NVIDIA’s current stock price is relatively undervalued, supporting the 'Overweight' rating and the target price increase.

Methodology notes

• Valuation MethodPE/PEG valuation

  Using Price-to-Earnings (PE) ratio for valuation

  The report primarily uses the PE ratio as its valuation tool, noting that NVIDIA’s current valuation is below peers, making it an attractive investment.

• Supply-Demand FrameworkSupply-demand framework

  Analyzing how supply-demand dynamics affect pricing

  The report notes that while supply constraints may pose challenges, NVIDIA’s robust supply chain management enables it to effectively meet growing market demand.

• Company Fundamentals & Financial FrameworkFree cash flow analysis

  Analyzing free cash flow status

  The report focuses on the company’s free cash flow, asserting that healthy cash flow supports future R&D investments and shareholder returns.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposing the impact of volume and price on revenue

  Through volume-price decomposition, the report identifies strong market demand as the primary driver behind NVIDIA’s revenue growth.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• NVIDIA Corp (US.NVDA)

  Directly benefits from growing AI chip demand

  Strengths

  Technological leadership, solid market share

  Weaknesses

  Facing supply chain pressures and competitive threats

  Comparison

  Compared to other semiconductor firms, NVIDIA holds a clear advantage in AI

  Risks

  Intensifying competition, uncertainty in trade policies

Key data

• Revenue$81.615 billionUp 19.8% QoQ, 95.1% YoY
• Data Center Revenue$75.249 billionUp 20.8% QoQ, 92.4% YoY
• Non-GAAP EPS$1.87Beat market expectations
• Gross Margin75.0%Slightly above expectations
• Target Price$288.00Raised from previous level

Impact & implications

NVIDIA’s strong performance not only underscores its dominant position in the AI chip market but also boosts confidence across the broader semiconductor industry. As AI applications continue to expand, NVIDIA is well-positioned to benefit from this trend. However, intensifying competition and potential trade barriers remain key risks to monitor.

Risks

• Intensifying competition
• Supply chain pressures
• Uncertainty in trade policies

What to watch

• Vera Rubin chip delivery timeline
• Competitors’ new product launches
• Developments in U.S.-China trade relations