The numbers speak

We wake up to one of these days: Nvidia’s earnings can’t be ignored. No matter how high the expectations were, no matter how much higher the whisper numbers sat, Nvidia managed to beat ALL of these expectations. The company printed revenue of $96bn – beating the highest bar of Wall Street expectations. Profit more than doubled to $54bn in Q2 this year compared to a year ago. And more importantly, Nvidia said that it expects to earn $108bn (+/-2%) in the current quarter. That came in around $4bn higher than what analysts had pencilled in and would also be the first time the company breaches the $100bn bar. Funny enough, though, these numbers alone couldn’t give Nvidia shares a boost in after-hours trading. What made the difference was the company’s CFO telling investors that the company’s revenue would grow 70% in fiscal year 2028 – and, wait – the latter would be 100% if they weren’t facing supply constraints!

The latter sent Nvidia’s shares up by more than 4.50%, confirming that despite concerns that the AI buildout could slow – whether because Big Tech companies are overinvesting to avoid falling behind in the AI race, because financing additional spending will become costlier due to the fact that they have already spent everything they had on hand to shoulder the spending of the past three years, or because they successfully build alternatives to replace Nvidia’s – the AI buildout will continue at full speed, and Nvidia will continue to put a notable part of this spending in its pockets.

Reportedly, half – yes, half – of AI data centre spending ends up in GPU purchases, and Nvidia has a market share of around 80–90%. When you think that Big Tech is expected to spend around a trillion dollars this year, and that Nvidia has a gross margin of around 75%, the back-of-the-envelope maths points to more than $300bn in potential gross profit. Even after operating expenses and taxes, that kind of earnings power makes Nvidia’s valuation look surprisingly reasonable given its growth rate. Assuming Nvidia maintains a net margin of around 60%, that would put the stock at roughly 19–20x earnings at the current price. That makes it look cheap.