This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
To say that investors were on the edge of their seats ahead of Nvidia's (NASDAQ: NVDA) highly anticipated financial report may well be an understatement. As the poster child for the artificial intelligence (AI) revolution, the company has become the benchmark for the tech industry at large and the yardstick by which progress in AI is being measured.
While the chipmaker delivered better-than-anticipated results on both the top and bottom lines, there were a few blemishes in what would have been an otherwise spotless report.
Let's take a look at what the results reveal, and if they give us any insight into the future of AI.
Paint by numbers
Investors had high hopes ahead of Nvidia's fiscal 2026 first quarter (ended April 27), and the AI chipmaker delivered. The company generated record revenue of $44.1 billion, up 69% year over year and 12% quarter over quarter. This drove adjusted earnings per share (EPS) of $0.81, which climbed 33%.
For context, analysts' consensus estimates were calling for revenue of $43.25 billion and EPS of $0.75, so Nvidia sailed past expectations with some wiggle room.
Fueling the bullish results was a record-setting performance from the data center segment, which continues to drive growth. The segment -- which includes processors used for data centers, AI, and cloud computing -- generated revenue that surged 73% year over year to $39.1 billion, driven by continuing demand for AI.
One item of note was the Trump administration's tightening export restrictions. Nvidia's H20 processor was originally designed to meet the already rigid requirements for AI chips destined for China. However, demand evaporated thanks to the new, more stringent licensing requirements, causing Nvidia to take a $4.5 billion charge in Q1 -- though that was lower than the $5.5 billion estimate the company provided last month.
The impact of the move trickled its way down the financial statements. For example, if not for the write-off, Nvidia's adjusted EPS would have clocked in at $0.96, resulting in a hit of about $0.15 per share.
However, as revenue jumped 69%, operating expenses climbed just 44%, sending more to the bottom line and helping blunt the impact of the lost sales to China. Nvidia's cash stockpile has grown over the past year, with cash and marketable securities of $53.7 billion, an increase of 71%. Free cash flow of $26.1 billion soared 75%.
CEO Jensen Huang provided commentary about the future of the AI revolution, and the rock star chief executive didn't mince words:
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.
This pronouncement, combined with the company's robust business performance, helped drive Nvidia stock higher in after-hours trading, with shares up more than 4% (as of this writing).
The tariffs wild card
Management expects the company's growth spurt to continue. Nvidia is guiding for record second-quarter revenue of $45 billion, which would represent year-over-year growth of 50%. This was largely in line with Wall Street's consensus estimates, but the devil is in the details. The number includes a loss of approximately $8 billion in its fiscal Q2 revenue from the H20 chips, thanks to the more stringent export requirements.
Despite the hit to its growth, investors remain bullish on Nvidia stock. Shares are currently selling for roughly 32 times next year's expected earnings. While that's a modest premium, it's still an attractive price to pay for a company expected to grow its profits by 39% this fiscal year and 35% in its fiscal 2026 -- even after the hit to China sales.
Nvidia CFO Colette Kress revealed, "Large cloud service providers remained our largest [customers] at just under 50% of data center revenue." A quick calculation reveals that 44% of Nvidia's total revenue is currently dependent on the world's largest cloud infrastructure providers, including Amazon Web Services, Microsoft's Azure Cloud, and Alphabet's Google Cloud. Honorable mention goes to Meta Platforms, which has also significantly scaled up capital expenditures (capex) to build out its data centers.
As evidenced by Nvidia's results, the data center build-out continues, and the world's largest tech companies and cloud providers have telegraphed their intention to continue the heavy spending that has characterized the build-out of AI infrastructure. Nvidia continues to dominate the data center GPU market, with more than 90% of the market.
For long-term investors, this quarter is one data point in a long track record of impressive execution. Nvidia remains at the heart of the AI revolution, which illustrates that the stock likely has much higher to go from here. It continues to be one of my highest-conviction stocks.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
