Chart #1 —
Another strong quarter for Nvidia
Nvidia’s surprisingly robust first-quarter performance and its outlook for the second quarter are likely to provide reassurance to investors. However, the financial results were affected by a sudden and stricter export ban to China, which was implemented without a transition period. This led to an estimated $2.5 billion loss in Q1 sales, a $4.5 billion charge related to inventory, and a reduction of around $8 billion in projected Q2 sales.
However, excluding China, Q1 sales would have beaten consensus by 7–8%, and Q2 sales guidance would have been ~15% ahead, reflecting booming global demand.
Drivers include surging AI chatbot usage, accelerating enterprise AI adoption, and the recent rollback of non-China export restrictions. Nvidia's management indicated that China may no longer be a viable market, with Q2 guidance reflecting no anticipated AI chip sales to the country—making any future sales there a potential upside surprise. Although a large impairment charge impacted reported Q1 gross margin and earnings per share, the company's core profitability is strengthening as Blackwell chip production scales up. Overall, Nvidia is benefitting from even stronger demand momentum, with many prior investor concerns around the sustainability of demand now dissipated. Following its strong results, the stock rose and now trades at 28 times forward earnings (based on FactSet consensus), a compelling valuation considering Nvidia’s growth trajectory, market dominance, substantial cash reserves ($54 billion), and free cash flow now comparable to Apple’s—all supported by a consistent history of outperforming expectations.