TLDR;
This video discusses Nvidia's latest earnings report, which led to a slight stock decrease in after-hours trading. It covers the company's financial results, future outlook, and strategic positioning in the AI and gaming sectors. The analysis includes a review of Nvidia's fundamentals, historical multiples, and a reverse discounted cash flow analysis to assess the growth expectations embedded in the stock price.
- Nvidia's revenue increased significantly year-over-year, but data center revenue slightly missed expectations.
- The company anticipates substantial growth in AI infrastructure, projecting a multi-trillion dollar opportunity.
- A reverse discounted cash flow analysis suggests the current stock price requires nearly 37% annual free cash flow growth, which the author believes may not be sustainable.
Nvidia's Earnings Report and Stock Performance [0:00]
Nvidia's recent earnings report for fiscal year 2026 quarter 2 showed a total revenue of $46.7 billion, marking a 6% increase from the previous quarter and a 56% increase year-over-year. Data center revenue reached $41.1 billion, up 5% from Q1 and 56% from the previous year, although it slightly missed expectations. Gaming revenue also saw growth, reaching $4.3 billion, a 14% increase from the previous quarter and a 49% increase year-over-year. The company's GAP and non-GAAP gross margins were approximately 72%, with earnings per share at $18 and $15, respectively, both exceeding expectations.
Future Outlook and Strategic Initiatives [2:49]
Nvidia provided a future outlook for quarter 3 of fiscal year 2026, expecting revenue to be around $54 billion, with a margin of error of plus or minus 2%. Gross margins are projected to be around 73.5%. The company is positioning itself for significant growth in AI infrastructure, estimating a $3 to $4 trillion opportunity over the next 5 years. Nvidia is ramping up its Blackwell platform and preparing for the launch of its next-generation Reuben platform, which will be its third-generation NVLink rack scale AI supercomputer.
Fundamentals and Financial Analysis [4:16]
Nvidia's earnings per share hit an all-time high of $15 in the most recent quarter. Analysts project continued earnings per share growth of 50% in 2026, with an expected deceleration in subsequent years. The company pays a dividend with a dividend yield of 0.02%. Revenue per share reached $1.80, also an all-time high. Free cash flow was at an all-time high of $1.7. The company's net cash position is $42.4 billion, and it is accelerating share buybacks. The return on invested capital has consistently expanded.
Historical Multiples and Valuation [6:15]
Nvidia's price-to-earnings ratio is at 58 times, which is lofty but in line with historical multiples when considering margin expansion. The price-to-earnings-to-growth (PEG) ratio is 1.3 times, suggesting potential undervaluation according to Peter Lynch's valuation method. A reverse discounted cash flow analysis indicates that the current stock price requires 36.8% annual free cash flow growth to be justified.
Reverse Discounted Cash Flow and Growth Expectations [8:05]
To justify the after-hours stock price of around $176 per share, Nvidia needs to achieve 36.8% free cash flow growth annually. While the company is expected to surpass this amount this year, and its historical growth rate has been substantial, sustaining this level of growth is questionable. The author believes the valuation is frothy and that these growth rates may not be sustainable due to the law of large numbers and potential conservatism from hyperscalers in their capital expenditures. Despite potential upside, the author views the company as a bit expensive, considering the cyclical nature of the business.