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Analysts are mostly bullish on the AI chipmaker’s prospects.
It was a double dose of good news for NVIDIA (NASDAQ:NVDA) investors on Thursday as the company posted better-than-expected earnings in Q1 and the tariffs imposed by President Donald Trump were struck down by federal judges.
There was some uncertainty heading into Wednesday’s earnings release by NVIDIA, as investors were unsure of the impact of tariffs and restrictions on selling in China on sales.
But the results allayed some of those concerns as NVIDIA generated $44.1 billion in revenue, up 69% year-over-year and 12% from the previous quarter. That exceeded estimates of $43.3 billion.
Net income rose 26% year-over-year to $18.8 billion, or 76 cents per share, but it was down 15% from the previous quarter. On an adjusted basis, net income was $19.9 billion, while earnings were 81 cents per share, up 33% year-over-year but down 9% from the previous quarter.
But this is where the impact of China trade restrictions came in. On April 9, NVIDIA was told by the federal government that it would need a license to export its H20 chips into China. This resulted in a $4.5 billion charge in the quarter stemming from H20 excess inventory and purchase obligations as the demand for the chips diminished.
“Sales of H20 products were $4.6 billion for the first quarter of fiscal 2026 prior to the new export licensing requirements. NVIDIA was unable to ship an additional $2.5 billion of H20 revenue in the first quarter,” management said in the earnings release.
Minus the $4.5 billion charge and the related tax impact, adjusted earnings per share would have been 96 cents per share – which would beat estimates of 93 cents per share. That realization likely drove the share price higher. Further, the operating margin would have been 71.3% excluding the charge, as opposed to the actual 60.5% margin.
Blackwell Chips Drive Revenue Surge
NVIDIA continues to see surging demand from data centers, driven by its new, more powerful Blackwell chips. In the first quarter, NVIDIA generated $39.1 billion of its $44 billion from data centers – up 10% from the previous quarter and 73% year-over-year.
“Our breakthrough Blackwell NVL72 AI supercomputer — a ‘thinking machine’ designed for reasoning— is now in full-scale production across system makers and cloud service providers,” Jensen Huang, founder and CEO of NVIDIA, said. “Global demand for NVIDIA’s AI infrastructure is incredibly strong. AI inference token generation has surged tenfold in just one year, and as AI agents become mainstream, the demand for AI computing will accelerate.”
NVIDIA also had a record quarter with its gaming chips, as they brought in $3.8 billion in revenue, up 42% year-over-year and 48% from the previous quarter.
China Market Closed to U.S.
For the second quarter, NVIDIA expects to generate $45 billion in revenue, which would be up about 5% from the first quarter. However, it reflects about an $8 billion loss in revenue due to the export limitations for China.
“Losing access to the China AI accelerator market, which we believe will grow to nearly $50 billion, would have a material adverse impact on our business going forward and benefit our foreign competitors in China and worldwide,” NVIDIA CFO Colette Kress said on the earnings call.
Huang added that China is one of the world’s largest AI markets, with roughly 50% of the world’s AI researchers there. It is a “springboard to global success” for chipmakers, but it is now out of reach for U.S. companies.
“Today, however, the $50 billion China market is effectively closed to US industry. The H20 export ban ended our Hopper data center business in China,” Huang said on the call. “As a result, we are taking a multibillion dollar write off on inventory that cannot be sold or repurposed. We are exploring limited ways to compete, but Hopper is no longer an option.”
Looking ahead to Q2, NVIDIA anticipates a gross margin of 71.8% as it works toward achieving gross margins in the mid-70% range toward the end of the fiscal year. For the full fiscal year, operating expenses are projected to grow in the mid-30% range.
Analysts were mostly bullish on the report, as NVIDIA stock got a slew of price target upgrades, led by Melius Research raising it by $55 per share, Citi and Piper Sandler boosting it by $30 per share, and BofA increasing it by $20 per share.
NVIDIA stock is now in the green YTD, up 1.2% after being down all year. It is trading at $140 per share and has a median price target of $170 per share, suggesting a 21% return over the next 12 months.