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NVIDIA Corporation (NASDAQ:NVDA), with its massive $4.43 trillion market capitalization, continues to dominate the artificial intelligence (AI) chip market, but faces growing geopolitical challenges as it navigates export restrictions to China. The company’s recent financial performance and future outlook paint a picture of strong growth potential tempered by significant risks. According to InvestingPro analysis, NVIDIA currently appears to be trading above its Fair Value, though the company maintains an "Excellent" financial health rating.
Financial Performance and Outlook
NVIDIA reported robust financial results for the first quarter of fiscal year 2026, with total revenue reaching $44 billion, representing a 69% year-over-year increase. The company’s data center segment, which includes its AI-focused products, grew by an impressive 73% compared to the previous year, reaching $39 billion in revenue. InvestingPro data shows the company’s remarkable revenue growth of 86.17% over the last twelve months, with a strong gross profit margin of 70.11% and an exceptional return on assets of 75.89%.
Looking ahead, NVIDIA provided guidance for the second quarter of fiscal 2026, projecting revenue of $45 billion (±2%). This guidance excludes approximately $8 billion in potential revenue from China due to ongoing export restrictions. Analysts note that if this China-related revenue were included, the implied guidance would have been around $53 billion, significantly surpassing market expectations.
Long-term projections for NVIDIA remain optimistic, with several analysts raising their estimates. BofA Securities projects earnings per share (EPS) for fiscal years 2026, 2027, and 2028 at $4.21, $5.87, and $7.23 respectively. Some analysts even suggest long-term EPS potential could reach $10, highlighting the company’s strong growth trajectory.
AI and Data Center Growth
NVIDIA’s growth is primarily driven by surging demand for AI computing capabilities. The company’s latest Blackwell architecture is ramping up quickly, with analysts noting that it contributed to approximately 70% of data center compute revenues in the most recent quarter.
The networking segment has also shown significant momentum, with revenues reaching nearly $5 billion. This growth is attributed to strong demand for NVIDIA’s NVLink compute fabric and Spectrum-X products, with major customers like Meta (NASDAQ:META) and Google (NASDAQ:GOOGL) Cloud Platform driving adoption.
Analysts highlight that AI capital expenditure is diversifying beyond U.S. cloud providers to international deployments, including in regions like Saudi Arabia. This expansion of the AI market is expected to fuel NVIDIA’s growth in the coming years.
Geopolitical Challenges
Despite its strong performance, NVIDIA faces significant headwinds due to geopolitical tensions, particularly regarding exports to China. The company reported a $4.5 billion charge in the first quarter due to its inability to ship approximately $2.5 billion worth of products to China. InvestingPro’s ProPicks platform offers valuable insights into how geopolitical risks affect investment opportunities in the semiconductor sector, with NVIDIA’s beta of 2.14 indicating higher volatility compared to the broader market. The ongoing export restrictions are expected to result in a loss of about $8 billion in potential revenue for the second quarter.
These challenges highlight the risks associated with NVIDIA’s exposure to the Chinese market, which some analysts estimate could represent a $50 billion opportunity for the company. The lack of clarity on U.S.-China trade policies remains a significant concern for investors and analysts alike.
Product Development and Innovation
NVIDIA continues to innovate and expand its product portfolio. The transition to the new Blackwell architecture is progressing smoothly, with manufacturing yields for the GB200 NVL72 systems improving. Analysts note that hyperscalers are deploying nearly 1,000 NVL72 racks per week, equivalent to 72,000 Blackwell GPUs.
The company is also making strides in emerging areas such as industrial AI and quantum computing. NVIDIA announced plans to build the world’s first industrial AI cloud for European manufacturers and is establishing AI technology centers across several European countries. Additionally, the company is investing in quantum computing research, including a new Quantum Computing Research Center in Boston.
Competitive Landscape
While NVIDIA maintains a dominant position in the AI chip market, it faces increasing competition from both established players and emerging rivals. Analysts note that companies like Huawei in China could potentially benefit from the current export restrictions, potentially gaining market share in the Chinese AI chip market.
However, NVIDIA’s technological lead and extensive ecosystem of software and developer support continue to provide significant competitive advantages. The company’s focus on comprehensive AI solutions, including networking and software components, helps to differentiate it from competitors who may only offer individual components.
Bear Case
How might prolonged China export restrictions impact NVIDIA’s market share and revenue?
The ongoing export restrictions to China pose a significant risk to NVIDIA’s future growth and market position. China represents a substantial market for AI chips, with some analysts estimating it could be worth up to $50 billion for NVIDIA. Prolonged restrictions could not only result in lost revenue but also provide an opportunity for local competitors like Huawei to gain market share.
If NVIDIA is unable to serve the Chinese market effectively, it may struggle to maintain its current growth trajectory and could see its global market share erode over time. The company would need to significantly outperform in other markets to compensate for the lost potential in China, which may be challenging given the size and importance of the Chinese AI market.
Could increasing competition erode NVIDIA’s dominant position in AI chips?
While NVIDIA currently holds a leadership position in AI chips, the rapidly evolving nature of the technology and the massive market opportunity are attracting increased competition. Major tech companies are developing their own AI chips, and specialized AI chip startups are emerging with innovative designs.
As competitors catch up technologically and offer more diverse options, NVIDIA may face pressure on both market share and pricing. The company’s ability to maintain its technological edge and continue delivering superior performance and efficiency will be crucial. Any significant breakthrough by competitors or a failure by NVIDIA to keep pace with innovation could potentially erode its dominant position in the AI chip market.
Bull Case
How could expanding AI adoption across industries drive NVIDIA’s growth?
The increasing adoption of AI across various industries presents a significant growth opportunity for NVIDIA. As more sectors recognize the potential of AI to improve efficiency, drive innovation, and create new products and services, the demand for AI computing power is likely to surge.
NVIDIA is well-positioned to capitalize on this trend with its comprehensive AI solutions, including hardware, software, and developer tools. The company’s expansion into areas such as industrial AI, autonomous vehicles, and healthcare AI could open up new revenue streams. As AI becomes more pervasive in enterprise operations, NVIDIA’s total addressable market could expand substantially, driving long-term growth beyond current projections.
What potential does NVIDIA have to maintain its technological edge in AI and HPC?
NVIDIA’s strong research and development capabilities, coupled with its extensive ecosystem of partners and developers, give it significant potential to maintain its technological leadership in AI and high-performance computing (HPC). The company’s continuous innovation in GPU architecture, as demonstrated by the rapid transition to the Blackwell platform, showcases its ability to stay ahead of the curve.
Furthermore, NVIDIA’s investments in emerging technologies such as quantum computing and advanced networking solutions position it well for future technological shifts. The company’s holistic approach to AI, encompassing hardware, software, and services, creates a robust platform that could be difficult for competitors to replicate quickly. If NVIDIA can continue to deliver breakthrough technologies and maintain its strong relationships with key customers and partners, it has the potential to extend its technological advantage in the coming years.
SWOT Analysis
Strengths
- Leadership in AI chip technology
- Strong financial performance and growth
- Comprehensive AI ecosystem including hardware, software, and developer tools
- Robust partnerships with major cloud providers and tech companies
Weaknesses
- Significant exposure to geopolitical risks, particularly in China
- Execution risks associated with rapid product development cycles
- Reliance on third-party manufacturers for chip production
Opportunities
- Expanding AI adoption across various industries
- Growth in sovereign AI initiatives and investments
- Emerging markets in industrial AI and quantum computing
- Potential recovery of access to the Chinese market
Threats
- Ongoing geopolitical tensions affecting export regulations
- Increasing competition from both established tech giants and AI chip startups
- Potential market saturation or slowdown in AI chip demand
- Macroeconomic uncertainties impacting customer spending on AI infrastructure
Analyst Targets
- Cantor Fitzgerald: $240 (August 18th, 2025)
- Morgan Stanley (NYSE:MS): $206 (August 18th, 2025)
- Piper Sandler: $225 (August 13th, 2025)
- Raymond (NSE:RYMD) James: $500 (July 15th, 2025)
- Barclays (LON:BARC): $200 (June 17th, 2025)
- Morgan Stanley: $170 (June 12th, 2025)
- Evercore ISI: $190 (June 12th, 2025)
- BofA Securities: $180 (June 5th, 2025)
- Piper Sandler: $180 (May 29th, 2025)
- Wells Fargo (NYSE:WFC): $185 (May 29th, 2025)
- Melius Research: $205 (May 29th, 2025)
- KeyBanc: $190 (May 29th, 2025)
- Barclays: $170 (May 29th, 2025)
- D.A. Davidson: $135 (May 29th, 2025)
This analysis is based on information available up to August 18, 2025, and reflects the views and projections of various financial analysts and institutions as of that date. For the most comprehensive analysis of NVIDIA’s performance and prospects, including over 20 additional ProTips and detailed financial metrics, explore the full Research Report available exclusively on InvestingPro.
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