Nvidia Price Target as CEO Addresses Rumor of China Breakthrough

On Wednesday evening, high-end chip designer Nvidia NVDA went to the tape with the firm's fiscal first quarter financial results. 

For the three-month period ended April 27, Nvidia posted an adjusted EPS of $0.81 (GAAP EPS: $0.76) on revenue of $44.062 billion. These top- and bottom-line results both beat Wall Street's expectations, while being good enough for year-over-year earnings growth of 57% on revenue growth of 69%.

The results really are impressive and much, much better than feared given the mid-quarter change in the restrictions on what kinds of technology can be exported to China and other nations. This pressured sales, suppressed margins and forced the firm to take an inventory-related charge against these earnings that fortunately was smaller than what the firm had warned it might be.

Nvidia Operations Details

For the period reported, as revenues grew 69% to $44.062 billion, the cost of that revenue increased 208.5% to $17.394 billion. This left a gross profit of $26.668 billion (+30.7%). That was good enough for a gross margin of 60.5%, down from 73% a year ago. On an adjusted basis, gross margin fell from 73.5% to 61%. Gross margin ex-the charge taken on inventories would have been 71.3%.

Total operating expenses came to $5.03 billion (+43.8%), leaving a GAAP operating income of $21.638 billion (+28%). Once adjusted, operating expenses increased 43% to $3.583 billion, leaving an operating income of $23.275 billion (+29%). After accounting for interest, other income and expenses and taxes, GAAP net income printed at $18.775 billion (+26.2%). This works out to $0.76 per fully-diluted share. After adjustments, net income landed at $19.894 billion (+31%), placing the adjusted version of a fully diluted EPS at $0.81.

Nvidia Segment Sales Performance

• Data Center generated sales of $39.112 billion (+73%). This was slightly below expectations.
• Gaming generated sales of $3.763 billion (+42%). This easily bested expectations.
• Auto generated sales of $567 million (+72%). This fell just short of expectations.
• Professional Visualization generated sales of $509 million (+19%). This topped expectations.
• OEM & Other generated sales of $111 million (+42%). This fell just short of expectations.

Nvidia CFO on AI Demand Arms Race

The Blackwell architecture contributed a rough 70% toward data center compute revenue for the period. 

CEO Jensen Huang referred not just to AI, but sovereign AI as some kind of "new growth engine" during the conference call. Huang mentioned that many nations around the world have entered into almost an arms race of sorts, building national AI platforms. 

Huang said, "Every country needs to build out AI infrastructure and there are umpteen AI factories being planned."

During that same call, CFO Kollette Cress mentioned CoreWeave CRWV, Microsoft MSFT Azure, Oracle ORCL, Alphabet's GOOGL Google Cloud, and Meta Platforms META when discussing demand. There does not yet seem to be any slowdown in appetite across the "hyper-scalers" or large AI platform providers.

Nvidia CEO Addresses China-Compliant AI Chip

Here is where it gets tough. The firm shipped a rough $4.6 billion in H20 chips to Chinese customers ahead of the new export licensing restrictions announced by the Trump administration for implementation in mid-April. 

Had the new export curbs not been announced, another $2.5billion of these chips would likely have been sold. Some good news? The firm recorded a $4.5 billion charge related to suddenly useless inventories, when it had warned about a possible $5.5 billion charge.

Though Reuters had recently run a story that Nvidia had developed a new China-compliant AI-capable chip, Huang sort of dispelled that idea during the call. He said that Nvidia has nothing to announce on that front right now and that the Chinese market is essentially closed to U.S. AI-capable chip designers at the moment. On CNBC after the close, Huang mentioned that China is a key market, and the U.S. risked losing that market completely if it cannot offer products that add value.

Nvidia Stock Fundamentals

For the quarter reported, Nvidia generated operating cash flow of $27.414 billion (+78.7%). Out of this number came capex spending of $1.227 billion and principal payments of $52 million, leaving free cash flow of $26.135 billion (+54.9%). Out of that number, the firm repurchased $14.095 billion worth of common stock for the corporate treasury, while paying out $244 million in cash dividends to shareholders. The rest moved to the balance sheet.

Looking at that balance sheet, the firm's cash position expanded to $53.691 billion, as inventories grew small to $11.333 billion. This took current assets to $89.935 billion. Current liabilities add up to $26.542 billion. There is no short-term debt on the books. This left the firm's current and quick ratios at 3.39 and 2.96, respectively. These are very healthy-looking ratios.

Total assets amount to $125.254 billion, which included just $6.267 billion in goodwill and other intangibles. At 5% of total assets, this is not even close to being an issue. Total liabilities les equity comes to $41.411 billion, which includes just $8.464 billion in long-term debt. As this is something that Nvidia could pay off more than six times over, this balance sheet is in better than excellent condition.

Nvidia Stock Guidance

For the current quarter, Nvidia guided revenue generation towards $45 billion, give or take 2%. This is a little below consensus view, which was for nearly $46 billion. What's important here is that this projection reflects about $8 billion in missing sales of H20 chips to Chinese customers. The firm is also projecting an adjusted gross margin of 72%, give or take 50 basis points, which was just about in line with what Wall Street was looking for.

My Thoughts on Nvidia Stock

The stock was stronger overnight. A number of highly-ranked analysts reiterated their "buy" or buy-equivalent ratings while increasing target prices. What's clear is that demand for all things AI-related has not let up in the least. What's also clear is that the Chinese market makes a material impact on the firm's overall performance. Cash flows are golden, and the balance sheet is simply fortress-like.

The chart we gave you on Tuesday with the cup pattern that had added a small handle appears to be ready to generate an attempted breakout on Thursday morning past the $137 pivot that we had spoken about ahead of these earnings. Look for relative strength to come close to technically overbought territory this morning and look (within the daily MACD) for the 12-day EMA to pull away from the 26-day EMA in bullish fashion.

Nvidia (NVDA) Stock Price Target

Target Price: $165 (reiteration)

Pivot: $137

Add: down to 50-day SMA currently $126.60)

Panic: Loss of 50-day SMA (currently $115.90).

Note: This is a good chance for many who re-engaged with NVDA during the April dip, to get their panic points above net basis.

At the time of publication, Guilfoyle was long NVDA and MSFT equity.