Nvidia Is About to CRUSH Earnings

Nvidia has a strange problem heading into earnings. Everyone already knows that they're going to crush it. So, the question isn't whether Nvidia is going to beat Wall Street anymore. It's whether they can beat expectations by enough to keep this entire AI story moving higher. And I think that there's a very specific bar that they need to clear. Let's go ahead and talk about Nvidia's earnings estimates. As a reminder, biggest position and one of the reasons that I've taken such a large stance on Nvidia and doubled down on it in 2025 is because of this explosion in artificial intelligence. This has led their growth to not only be in high triple digits, growing at 265% back in January 2024, but now even today reacelerating that growth after China revenue ended up falling off. China revenue was a part of their outlook, was a part of their overall earnings. They stopped doing that and then as we're starting to overlap those earnings, the revenue is reacelerating. This is just purely in customers outside of China, which by the way, they are the number two player in all of artificial intelligence in terms of the purchases, the headcount, the focus in that space. So, the fact that we're even reacelerating without China is pretty wild. going into Q2. And whenever I started to forecast this, I had to take a look at what Nvidia had already told us. This is the clearest indication of what they're thinking. $91 billion in revenue plus or minus 2% at 75% gross margins plus or minus 50 basis points and then operating expenses of around $ 8.3 billion, which based on that revenue is similar to where we saw last quarter. And then we also have a tax base around 16 to 18%. If you take that plus or minus 2% on Nvidia, you see anywhere between 89 billion to92.8 billion leading to year-over-year growth rates of somewhere between 90% to 98.6% based on that guidance range. My current forecast is that they are going to do $93.5 billion indicating a 100% growth rate. I want to talk through why I believe this. First off, Wall Street indicates that they believe that they are going to be on the high side of that guidance. $92 billion. So on the high side of that guidance that Nvidia had already given, 97% growth rate year-over-year. Each and every quarter since Nvidia has been in this sort of AI boom, they have constantly beat revenue and EPS expectations. Those revenue and EPS expectations on average, especially near the top here, is roughly about 3%. That continuous beat every single quarter has led Wall Street to believe like back in the day they used to believe that going into 2028 they were going to do somewhere around $35 billion in revenue. Today they're closer to about 150 billion on the same quarter but every single quarter those 3% beats constantly tackle up and the revenue expectations for further quarters ends up getting brought up with it. Same thing for EPS. Similar quarters that expected us to do 30 to50 are now expecting us to do anywhere in the range of $2.25 to $3.50. The exact same quarters. So those continuous 3% beats 5% beats is what leads to revisions even higher. I'm assuming a regular 3% revenue surprise here, which would be just above Nvidia's $91 billion or about 4.2% 2% higher than their midpoint in their range. That would lead to 102%. And by the way, there's a lot of analysts that actually have numbers even above this, much closer to 96 billion. But I think that this could be where Nvidia actually comes in at based on the continuous surprises each and every quarter. I'm not even guiding for that. I'm guiding for 93.5 billion. So about a little over a billion less. One of the reasons that I believe this is because of that heightened capex that we've ended up seeing last quarter just in these sort of seven names which even Nebus in there is very small name and there's other private companies that are doing just as large mind you this doesn't even include SpaceX this doesn't include Nscale or many other businesses that are doing huge amounts of capital expenditures very focused on Nvidia hardware that has led us to $600 billion in the last 12 months for capex in these seven names alone, no SpaceX. If you end up taking a look at the change that we've seen from all of these quarters, because we already have their Q2 numbers, what we ended up seeing for Alphabet, they increased their capex by $15 billion. Amazon brought up theirs by 20 billion. Microsoft increased their capex. We ended up seeing Meta increase theirs on the bottom end of capex. Nebus kept their very, very high, 20 to 25 billion, very consistent. Coreweave ended up increasing theirs, and so did Oracle. So Q2 came in for the full year of 2026 quarter over-arter increasing all of their capexes. That is pointing to massive amounts just in these names not including SpaceX that we are looking at 2026 capex initial outlooks were 660 billion. This was from a year ago. Last quarter, 710 billion and not including the change in Microsoft's lease reclassification would be roughly about $748 billion of capital expenditures. So constant increases in their overall spend. If we look back, as a reminder, $91 billion, not including China revenue, but we may have seen China revenue back in July uh 14th, which gives us a few weeks for fiscal year Q2 2027. Now, as a reminder, cuz some people get confused, that is this quarter. They talk about 2027, but it's their fiscal year, not the actual year. That we did actually say that shipments of H200s have began. Now you would say okay but payment doesn't come in necessarily right away but the new China deals that Nvidia has come up with have been reported to say that we are not doing any payment plans that if you are to purchase chips from Nvidia that they have to pay in full before you end up getting the chip. So some of this revenue very very small amounts may have come in in Q2. However we're seeing larger reports now saying that China is now easing their limits as well. Bite Dance and Tencent now able to order tens of thousands of H200s that are expecting shipments in Q3. So way more there in terms of forecast going forward, but Q2 only a very very small amount. So I'm not necessarily including that in my guidance, but it is something to consider. On top of that, whenever it comes to net income, and we have to look at this from an adjusted net income base, and then I'll talk about why, but it it has to do with their nonoperating income, which is really money that's made on some of the investments that they've made. Not only have they guaranteed orders from Core Wee and Nebus through large investments, $2 billion deals with those businesses, but on top of that, those companies have actually appreciated over time. So, they were winning in two different ways. This has led their adjusted EPS excluding those mark-to-market gains of roughly $187, constantly increasing over this period. And going out to next quarter, Wall Street is roughly anticipating about $29. This is really bringing in $50 billion, $50.5 billion at a 54% margin, net income margin. A decrease in their margin, even though that's not what Nvidia said that they were going to guide for. They also said 55%. So, that's also how I'm predicting it. I'm assuming a 55% margin on that $93.5 billion worth of growth, bringing them up to put up $52 billion of adjusted net income. This is my guidance for the company. That's what I expect that they're going to do, not a decrease in that margin because we haven't seen a reason for them to do so. That would lead to about $2.16 of EPS for my Q2 guidance for Nvidia, but that is adjusted. Let's talk about their actual GAP earnings now, which showed off last quarter at a 71% margin, not a 55% margin, a 71% margin, and actually showed off 58 billion. I'll show you why. They marked 15 nearly $16 billion of marktomarket gains based on some of the investments that they've made in their books and we'll show some of those off. $13.4 billion of those were from gains on public equities. Nebus, Intel, Cororeweave, those sort of names. $2.6 billion came from non-marketable or private equities. So names like Nscale, SpaceX, that sort of thing. This was before since those quarters between Q1 and Q2 although they have seen significant gains in their overall portfolio and we're going to highlight that here in a second. Those names like Intel have gone from $99 at the end of Q1. This is not the regular Q1. This is Nvidia's fiscal Q1. So from April 31st to July 31st. These names have for the most part decreased during those periods. So we've actually seen a draw down in their overall portfolio from 44 billion at the end of Q1 to roughly about 38 billion or a loss of 5.4 billion. So maybe a potential that we're not going to see those marktomarket gains like we did last quarter of 16 billion plus dollars cuz we really haven't seen that. However, they did recently announce in their holdings public portfolio that they now have a $21 billion SpaceX holding in Q2 because they had to report their 13F on the regular Q2 time which is from April, May, June, even though they report on a May, June, July period. That ends up showing off a $21 billion gain. However, there's reports that they ended up putting in $10 billion in order to end up see this return. So, it might not all be gains. I am assuming a $10 billion mark-to-market gain on their investments based on timing of some of these investments. Some of these companies have been trimmed. On top of that, SpaceX ended up showing off about a $12 billion gain from the last time. NScale, OpenAI, Enthropic, some of these companies have had increased rounds in Q2. So, those are some of the private equity names. I'm just putting it at sort of an average $10 billion. So my assumed total gap net income number right now is at about 62 billion or a net income margin of about 65%. Almost 66%. This is my assumption. That also assumes on a gap basis that Nvidia is going to be putting up a $257 EPS which I've also guided for a tax rate of 18%. The tax rate that they assumed at the beginning of the year was between 16 to 18%. many quarters before that they've actually come in much lower than what they've said. I'm assuming the highest part of that range. This would assume a little bit of conservatism in this number. This is way way higher than what Wall Street has it at at about $29. Now, the reason why I think that this is the valuation that I believe or the numbers that I believe is going to lead Nvidia even higher is because the valuation that's in this company. Not only are they going to take a lot of the free cash flow net income that they've already procured in this last quarter and put that into buybacks and put that into dividends which they've shown a very very large increase in their dividend 25x last quarter. They've also added an additional $80 billion of share repurchase authorization into the quarter. And my belief is if they continue to grow at this sort of 80 to 100% growth rate that those $80 billion of share authorizations are going to become $ 160 billion the year after if they can continue to keep up this rate. So knowing the amount of outstanding shares of the company very important on the valuation this is really important for Nvidia as well. While the market cap has continuously increased all the way from January of 2024 till now, the valuation in terms of their earnings has decreased because the company is not appreciating as fast as their earnings are. So the PE ratio is at some of the lowest levels that we've ever seen it at, sitting at around roughly 32 times as of today and a forward PE ratio of roughly 21 times. A little bit under that. As we look to free cash flow, 42 times on a trailing free cash flow base and then 21 times on a forward free cash flow base, meaning Wall Street still expecting them to keep extremely high free cash flow margins and actually improving over time. The one thing that I think is quite wild whenever you look at the other big tech names that companies are putting Invidia into and sort of the comparables, the growth rates are not even remotely the same. And yes, this is cyclical. Yes, there are a lot of these companies that might have more sustained earnings than Nvidia, but during this mass like while the rope is completely tight on the supply constraint, this growth rate and the high margins that they end up seeing, which mind you in Google's they put up a 93% net profit margin. Clearly, that's not true. It was actually much closer to 30%, but they ended up posting nearly a hundred billion dollars of gains due to SpaceX and Enthropic holdings that they have that ended up spiking up their net income margins. Same thing for Nvidia, their margin is actually closer to about 55%. But even on a non or sort of adjusted net income margin basis, Nvidia would still be by far the highest across this entire board. And the reason why you don't see any mark here is because we haven't seen their Q2 numbers just yet. Very important to to realize that. But whenever you go ahead and you look at the forward pees of these businesses based on the margin that you end up seeing based on the overall growth, you see Nvidia near the absolute bottom. 21 times puts them closer to Meta in terms of its valuation than where even an Amazon or an Apple or even a Google would be at on that forward PE basis. 26* 28 times 34 times for companies that are growing at one sixth the rate as Nvidia at much much lower margins. So the pricing here on Nvidia I think is super disconnected from where we actually should be. Then comes in the actual cash generation. Free cash flow is the ultimate metric. This is how much cash companies are generating. And while a lot of these businesses have been really lowering their free cash flow generation to afford the next chips, the real beneficiary here is Nvidia. They're the ones taking in all that cash and they're keeping it because they don't have to set up fabrications. They're purely just a software designer. They build the blueprints and send them off to TSMC in order to take all that risk and the build out and all of these things. So the free cash flow margin stays extremely high, some of the highest rates that we've seen over the period that we're looking here, roughly about 2 years, and is likely to even continue to post high free cash flow margins as long as this buildout remains strong, which is exactly what Nvidia and Wall Street is guiding towards. Based on the amount of revenue that I'm believing Nvidia is going to post and their free cash flow that I believe they're going to post, Nvidia is actually going to break a world record come this Wednesday for the most free cash flow ever generated in a single quarter, beating out on Apple's previous record of roughly about 50 plus billion. I think it was 52 billion. But by a long shot, Nvidia is going to surpass that and likely continue to beat their own records in the companies going forward. Now, looking ahead is extremely important to companies that have these tight constraints like that rope that I'm talking about. Whenever they talk about things like working on potentially seeing a $1 trillion forecast between 2025 to 2027 on Blackwell and Reuben architecture, this is extremely important, this wording, because Jensen Wong had come out and corrected his statement and said, just to be very clear, what he's talking about is Blackwell architecture and Reuben architecture. meaning Blackwell, Blackwell Ultra, and Reuben, not Reuben Ultra. Those three systems alone. What we've then ended up seeing is that they've entered into the Vera CPU market, roughly a $200 billion new total addressable market for Nvidia, not included in that $1 trillion forecast for Nvidia previously. This is all brand new money. They said we have visibility to near $20 billion in total CPU revenue this year, setting us up to become the world leader in CPU supply. So they are going to add in an additional $20 billion of potential new visible revenue that was not included in the trillion outlook. On top of that, they now have just said that SpaceX is now deploying Nvidia Vera CPU systems. SpaceX came out and recently said that they are exclusive to Nvidia. So that's going to be for all of their GPUs. CPUs and LPX systems or their inference chips which Nvidia just announced today that they are in full production of their LPX system and also Nebius was the first company to take adoption of those chips. So we're already selling two new systems Vera CPUs and Gro LPX systems that are not included in that $1 trillion forecast that Jensen had given us for 2027. He said analysts are now forecasting hypers scale capex to exceed $1 trillion in 2027. Mind you, there are some analysts forecast as high as $1.4 trillion and Aentic AI beginning to proliferate all industries. AI infrastructure spend is on track to reach 3 to4 trillion annually by the end of this decade. So from 2026 to 2030, they believe capex is going to exceed 1 trillion in 2027 and then 3 years from now 3 to 4x that amount. pretty wild. And then he said on an annualized basis, this is why I remain an extremely extremely bullish person in terms of my overall holding of Nvidia. It's why I continue to be way way overweight in this position, over 50% of my portfolio. But just as a recap on the numbers that I talked about for this quarter specifically, I am expecting $93.5 billion, a growth rate of over 100%. And I've showed reasons to believe that this is quite conservative. net income on a GAP basis of roughly 62.4 nearly 62.5 billion 66% margin based on a mark-to-market gain and keeping up a 55% margin showing off EPS of $257. If they don't end up showing off those marktomarket gains of 10 billion, I believe that EPS on an adjusted basis will be $216. Still much higher than Wall Street estimates. Wall Street and Nvidia have it somewhere coming in revenue 91 to92 billion and EPS coming in somewhere around $29. That is my recap going into Nvidia earnings on Wednesday. I couldn't be happier. I believe that the buildout is going to happen. And while the stock doesn't necessarily have to appreciate on the news that we've seen today, there is constant reports whether it's Elon Musk that just announced SpaceX in partnership with Nvidia has designed a space optimized Vera Rubin NVL72 system for launch to orbit in Q4 of next year with significant scale in 2028. So the story is not slowing down here. Every single way that you look, it's either companies that have adopted Nvidia systems, taken payment from Nvidia to buy shares from those companies, which a lot of people talk about circular financing, but they're not talking about the fact that Nvidia has also benefited from those positions going from $13 billion that they've allocated to public positions that are now worth over $44 billion. And then on top of that, like so not only has that contributed to their net income that they've been posting, which is very much real because they've sold some of those positions like Lummentum and Coherent, some of those positions they no longer hold, but they did make huge gains on those positions that have also allowed them to get closer relationships with those companies to then secure supply of photonics, secure supply of memory, secure supply of customers like Cororeweave, Nebus, SpaceX. And those customers put in a lot more than the billions of dollars that Nvidia has allocated to them, not only to buy companies that are also doing very well. But I'm curious your guys take on Nvidia. Are we going to run in the stock come Wednesday