Should You Buy NVIDIA After Impressive Q1 2027 Earnings and Guidance?

NVIDIA Corp. NVDA — the undisputed global leader of generative artificial intelligence (AI)-powered graphical processing units (GPUs) — reported solid first-quarter fiscal 2027 earnings results. Adjusted earnings per share came in at $1.87, surpassing the Zacks Consensus Estimate of $1.77 and the year-ago figure of $0.81. Revenues came in at $81.62 billion, outpacing the Zacks Consensus Estimate by 3.63% and the year-ago figure of $44.06 billion. Adjusted gross margin remained strong at around 75%.The chart below shows the price performance of NVDA year to date.Image Source: Zacks Investment ResearchData Center Revenues Maintain MomentumData center revenues reached $75.2 billion, surged 92% year over year. NVDA reported 50% of these revenues came from hyperscalers. This segment will continue its northward journey as four AI hyperscalers — Meta Platforms Inc. META, Alphabet Inc. GOOGL, Microsoft Corp. MSFT and Amazon.com Inc. AMZN — raised their AI capex budget to $725 billion in 2026 from $670 billion estimated earlier.  The most important fact is that the remaining 50% of data center revenues came from various other sources like AI Clouds, industrial, enterprise, and sovereign customers. This indicates that NVDA is strategically diversifying its customer base as AI tools are gradually being adopted in mainstream business operations.Transformation From AI GPU to AI CPUBeside being the generative-AI-powered GPU leader, NVIDIA is aiming to become a leading supplier of AI CPUs (Central Processing Units). The so long dormant AI CPU space has charged up with the advent of agentic AI tools. In this regard, NVDA’s new AI superchip — Vera Rubin — may become a game-changer. This innovative rack-scale system will deliver 10 times more performance per watt than its predecessor, Grace Blackwell.The Vera Rubin system comprises 1.3 million components, including 72 Rubin GPUs and 36 Vera CPUs. NVIDIA will start the shipment of Vera Rubin in the second half of 2026.  It had earlier announced the roadmap for Rubin Ultra, likely to be introduced in late 2027, and Feynman AI chips to be launched in 2028.CEO Jensen Huang said, “agentic AI has arrived” and the factory buildout is “accelerating at extraordinary speed.” Huang also said that Vera Rubin, will be “even more successful than Grace Blackwell.” Chief Financial Officer Colette Kress said the new Vera CPU “opens a brand new $200 billion tab for NVIDIA.”amaThe move highlights how NVIDIA is transitioning from just a GPU company to a full infrastructure powerhouse.Near-Term Challenges Ahead for NVDANVIDIA’s major hyperscaler customers like Meta, Alphabet, Amazon and Microsoft are currently developing their proprietary custom ASICs. Meta introduced four AI chips in March to be manufactured by Taiwan Semiconductor Manufacturing Co. Alphabet has been developing its silicon-dubbed AI-powered tensor processing units (TPUs). Management has intended to create a new AI infrastructure for this. Amazon said that its chip business currently generates $20 billion per annum. Moreover, on yesterday’s earnings call, management said that the company has “largely conceded” China’s AI chip market to Huawei. This means that NVDA is no longer considering China, which was once a major growth market for its innovative generative-AI chips, a meaningful revenue contributor for the future.   Additionally, management said that the lingering U.S. war with Iran in the Middle East will have a negative material impact. A supply-constrained environment for memory chips and foundry capacity will have a significant adverse impact on input costs. Much Needed Organizational RestructuringIn order to address a new business environment and challenges, NVIDIA has made organizational restructuring with two primary reporting segments. The legacy Data Center segment will include hyperscalers and AI clouds, industrial, and enterprise sources.  The Edge Computing segment comprises devices or agentic and physical AI, like PCs, game consoles, workstations, AI-RAN base stations, robotics and automotive. Huang emphasized that physical AI will be “the next wave.” In this regard, NVDA’s CUDA software platform will give the company an edge in the autonomous vehicles and robotics space. Strong Guidance and Shareholders’ ReturnsNVIDIA projected its fiscal second-quarter 2027 revenues to be around $91 billion (+/-2%). The Zacks Consensus Estimate currently stands at $84.1 billion. The non-GAAP gross margin should be approximately 75% (+/-0.5%). Operating expenses forecast at $4 billion for GAAP and $2.8 billion for non-GAAP.In the last reported quarter, NVDA bought back $19.3 billion of its own stock and paid another $243 million in dividends. For the second quarter, management raised its repurchase authorization to $80 billion and its quarterly dividend from $0.01 to $0.25 a share.Solid Estimate RevisionsFor fiscal 2027 (ending January 2027), the Zacks Consensus Estimate currently shows revenues of $360.29 billion, suggesting an improvement of 66.9% year over year and earnings per share of $8.16, indicating an increase of 71.1% year over year. The Zacks Consensus Estimate for the current year has improved 0.4% in the last seven days.For fiscal 2028 (ending January 2028), the Zacks Consensus Estimate currently shows revenues of $472.88 billion, suggesting an improvement of 31.3% year over year and earnings per share of $10.90, indicating an increase of 33.6% year over year. The Zacks Consensus Estimate for next year has improved 0.6% in the last seven days.NVDA currently has a long-term (3-5 years) EPS growth rate of 40.8%, significantly above the S&P 500’s long-term EPS growth rate of 16.6%.Image Source: Zacks Investment ResearchExcellent Upside Potential for NVDA StockNVIDIA has a return on equity (ROE) of 97.37% compared with the S&P 500’s ROE of 17.26% and the industry’s ROE of a mere 4.3%. NVDA has a forward P/E (price/earnings) of 27.05% compared with the industry’s P/E of 56.17% and the S&P 500’s P/E of 17.95%. The short-term average price target of brokerage firms for the stock represents an increase of 23.3% from the last closing price of $223.47. The brokerage target price is currently in the range of $140-$380. This indicates a maximum upside of 70% and a downside of 37.4%. The risk/reward ratio is a favorable 1.87.Investment Thesis for NVDA SharesNVIDIA currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. NVIDIA represents a rare opportunity to invest in a company with proven execution and substantial unrealized potential in the AI revolution. Astonishing growth potential of the global AI infrastructure market and NVDA’s strong guidance and business visibility despite revenue loss in China are noteworthy. As a result, the average target price of brokerage firms is expected to witness a solid near-term upside. At this stage, it will be prudent to buy NVDA on every dip. Hold this stock for the long term as the company’s strong execution of the last several quarters and robust projections should generate more value.Image Source: Zacks Investment ResearchZacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.Free: See Our Top Stock And 4 Runners UpThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks