On Wednesday last week, all eyes were on AI darling Nvidia, as the second largest company in the world (in market cap terms) reported its latest earnings figures.
To strip it back to basics… Nvidia introduced, and then has continually evolved, the graphics processing unit (GPU), which is a piece of hardware originally designed to display images, videos, animations etc. However, GPUs are now used in a much wider range of applications, including machine learning and AI. Various projections show the substantial increase in demand in GPUs over the coming years as AI plays a greater role in all of our lives.
Investors were glued to the screens as Nvidia reported their latest earnings and reinforced its dominance at the heart of the global AI revolution. The company exceeded analyst expectations for both revenue and earnings, reporting adjusted earnings per share of $0.96 against expectations of $0.93, and revenue of $44.06 billion versus $43.31 billion expected. This performance represents a 69% increase in revenue year on year, driven primarily by Nvidia's data centre business, which posted 73% growth to reach $39.1 billion and now makes up 88% of the company's total revenue.
Despite geopolitical hurdles, particularly related to US export restrictions on its H20 chips to China, Nvidia’s growth remains impressive. The company acknowledged it lost an estimated $2.5 billion in sales due to these restrictions and took a $4.5 billion inventory charge, which also impacted its gross margin. Without the China hit, gross margin would have been 71.3% instead of the reported 61%.
CEO Jensen Huang was candid on the earnings call, calling the $50 billion Chinese AI chip market “effectively closed” to US firms due to government action. Currently China accounts for circa 13% of Nvidia’s total revenue, however investors brushed that news off and focused on other elements of the figures with shares rising 6% in after-hours trading (albeit the share price is back to where it started prior to the earnings release).
Nvidia's success continues to be fuelled by explosive demand for its AI infrastructure. Its chips are core components of large language models like OpenAI’s ChatGPT, and major cloud providers like Microsoft are aggressively deploying Nvidia’s Blackwell GPUs. Microsoft alone is expected to scale up to hundreds of thousands of Nvidia's GB200 chips as AI workloads expand.
The company’s growth is not limited to AI alone. Gaming revenues rose 42% year-over-year to $3.8 billion, bolstered by demand for both traditional gaming and AI-capable chips. Nvidia’s automotive and robotics division surged 72% to $567 million, reflecting rising interest in autonomous driving and robotics applications. Even its professional visualisation unit, used for 3D modelling and creative applications, grew 19% to $509 million.
Still, amid all the technological excitement, it’s crucial for investors to ground their enthusiasm in financial reality. Nvidia spent $14.1 billion on share repurchases and issued $244 million in dividends—signalling confidence in its cash flows but also hinting at an effort to support a lofty valuation. While Nvidia’s fundamentals are strong, its share price has baked in a tremendous amount of future growth. Even with robust tailwinds from AI, this exposes investors to the risk of overpaying.
This is where the importance of sensible asset pricing comes into focus. Regardless of the strength of a company’s technology or market position, the price one pays for an asset determines the return. Nvidia is undeniably a leader in one of the most transformative technological shifts in decades. However, investors must balance their enthusiasm with careful analysis of valuation metrics, growth assumptions, and macroeconomic risks—especially in a sector prone to cycles of hype and correction.
As a reminder of the volatility, this calendar year alone, Nvidia has gone from the January highs of $153.13 per share to April tariff lows of $86.62 (intra-day) – down circa 43.5%. Equally it has gone from $86.62 on 7th April to $143.49 on Thursday last week post figures – up circa 65.5%.
Technology as a theme has never been more vital. AI, robotics, cloud computing, and next-gen gaming are reshaping industries and redefining productivity. Nvidia’s performance showcases the power of technological innovation to drive extraordinary growth. Yet even the best companies can be poor investments if bought at unjustifiable prices. Investors should celebrate innovation, but always with a clear eye on valuation and long-term returns.
