Should You Buy Nvidia Stock After the Massive Investor Update?

SUMMARY

Parkev Tatevosian, CFA, analyzes Nvidia's latest earnings, highlighting the company's significant revenue growth, robust profit margins, and effective capital allocation strategies. The discussion covers Nvidia's operational performance, strategic investments, and updated valuation, concluding with a reaffirmed buy rating on the stock.

MAIN POINTS

• Nvidia reports $81.6 billion in revenue for Q1 of fiscal year 2027, exceeding management's forecast by $3 billion and achieving 85% year-over-year growth. [0:00]
• Despite zero data center chip sales to China, Nvidia's data center revenue reaches a record $75.2 billion, up 92% from the previous year. [2:00]
• Nvidia's strategic investments in companies like Intel and OpenAI yield $16 billion in net gains from equity securities in the quarter. [3:00]
• Operating cash flow rises to $50 billion, enabling $20 billion in share buybacks and dividends, with an additional $80 billion authorized for repurchases. [4:02]
• Tatevosian explains how share buybacks can allow Nvidia's stock price to rise significantly without a proportional increase in market capitalization. [7:01]
• The updated discounted cash flow model values Nvidia at $273 per share, well above the current market price, supporting a continued buy rating. [9:00]

DETAILED ANALYSIS

Nvidia delivered a standout performance in its latest earnings report, posting $81.6 billion in revenue for the first quarter of fiscal year 2027, which exceeded management's projections by $3 billion and represented an 85% increase from the prior year. This rapid growth is notable given Nvidia's already substantial scale, making such a high growth rate rare among large-cap companies. Gross profit margins reached 74.9%, a significant improvement from the previous year, which had been impacted by inventory write-downs related to sales restrictions in China.

Operating income surged by 147% to $53.5 billion, maintaining an operating profit margin above 60%, underscoring the company's strong profitability.

A key highlight was Nvidia's data center segment, which achieved a record $75.2 billion in revenue, up 92% year-over-year, despite the absence of sales to China—previously a major market. This demonstrates Nvidia's ability to drive growth even amid geopolitical headwinds. The company also benefited from strategic investments in firms such as Intel and OpenAI, generating $16 billion in net gains from equity securities in the quarter, reflecting prudent capital allocation and successful partnership strategies.

Nvidia's cash flow from operations increased to $50 billion, up from $27.4 billion a year earlier and $36.2 billion in the previous quarter. This robust cash generation enabled the company to return $20 billion to shareholders through share buybacks and dividends, with the board authorizing an additional $80 billion for future repurchases. The analysis addresses a common misconception among retail investors regarding market capitalization, clarifying that aggressive buybacks can reduce shares outstanding, allowing the stock price to appreciate without a commensurate rise in market cap.

Looking forward, management projects $91 billion in revenue for the next quarter, with gross margins expected to remain at record highs. The updated discounted cash flow model assigns an intrinsic value of $273 per share, compared to the current market price of $223, reinforcing Nvidia's position as a top investment opportunity in the AI sector.

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