Nvidia’s FQ1 Results Answer Market Concerns, Says Benchmark

China shmyna. That might be Nvidia (NASDAQ:NVDA) fans’ initial reaction to those who think the ban on chips sales to the superpower from the East might signal a big downturn in fortunes for the chip giant.

Nvidia’s fiscal first-quarter results (April quarter) showed the company to be in rude health. Despite the ban, the Jensen Huang-led firm still beat Street expectations; revenue rose by 69.2% year-over-year to $44.1 billion, outpacing consensus by $700 million. The Data Center segment, which includes Nvidia’s all-conquering AI chips, generated $39.1 billion, up by 10% sequentially and 73% vs. the same period a year ago.

Thing is, following the April 9 U.S. export restrictions that effectively banned Nvidia’s H20 GPU – custom-built for China to comply with earlier export rules – the company halted shipments, missing out on $2.5 billion in orders. This revenue was not accounted for in Nvidia’s or analysts’ original forecasts. Had it been included, Q1 sales would have reached $46.6 billion, $3.3 billion above consensus estimates.

Moreover, Nvidia recorded a $4.5 billion charge during the quarter to write down H20 inventory and related purchase obligations, which reduced gross margin to 61% (71.3% excluding the charge). As a result, adj. EPS came in at $0.81. Impressively, that figure still beat the Street’s forecast by $0.06 (adj. EPS would have reached $0.96 excluding the charge).

For FQ2, Nvidia is guiding to $45 billion in revenue, excluding an estimated $8 billion in missed backlog orders. While this appears $921 million below consensus, the Street’s estimate didn’t fully account for the lost China business. On a comparable basis, revenue would be $53 billion – $7.1 billion above the analysts’ forecast of $45.9 billion.

Investors seemed to approve of the results, sending shares higher in Thursday’s session, a reaction that makes sense to Benchmark’s Cody Acree, an analyst ranked in the top 3% of Wall Street stock pros. “We agree with the market’s initial reaction to its results, which once the China charge and associated revenue is netted out, equal a solid beat and raise report, which appears to be a relief to investors that worried just how bad things could get,” the 5-star analyst said.

Tariff volatility, global economic uncertainty, and tighter China export restrictions have all recently overshadowed ongoing momentum in AI infrastructure investment and Nvidia’s strong new product rollout. Even the most “optimistic bull” started to question the company’s exposure to China and its ability to withstand a sudden halt in shipments. But Nvidia offered an emphatic retort. “We believe Wednesday’s report answers much of the market’s concerns, as Nvidia appears to be growing despite its China issues, with broad multi-segment demand continuing to outstrip its ability to fully supply, plus progress even being seen in its ability to improve manufacturing yields and volume availability,” Acree went on to elaborate.

While the company was “noticeably coy” about its limited options during the call, Acree anticipates Nvidia will introduce a new China-specific chip variant in the coming months. “Ultimately,” the analyst summed up, “we believe the China market is too large and strategically important for the industry’s leading solution supplier to be absent for long and expect Jensen to do whatever is necessary to re-engage and reclaim its lost opportunity.”

To this end, Acree maintained a Buy rating on the shares along with a $190 price target. There’s potential upside of 35.5% from current levels.

Nvidia gets robust support elsewhere on the Street; based on 32 Buys, 4 Holds and 1 Sell, the stock claims a Strong Buy consensus rating. Going by the $164.21 average target, a year from now, shares will deliver returns of 17%. (See Nvidia stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.