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- Nvidia's Monster Quarter: Big Wins, Challenges Ahead
Nvidia's Monster Quarter: Big Wins, Challenges Ahead
Last night, Nvidia released its Q1 FY2026 earnings—and the numbers were nothing short of explosive. We’re talking about record-breaking revenue, huge beats on expectations, and further proof that AI isn’t just hype—it’s a cash machine when you’re sitting at the top of the chip food chain like Nvidia.
But under the surface of this headline growth, there’s also complexity. Geopolitical headwinds, export restrictions, and chip-specific inventory write-downs are becoming harder to ignore. Let’s break it all down—what worked, what risks are rising, and what comes next.
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Revenue and Earnings: Still Dominating
Nvidia brought in $44.1 billion in revenue for the quarter, up 69% year-over-year. That beat Wall Street’s expectation of $43.3 billion. It’s almost hard to wrap your head around how fast this company is growing—and it’s being fueled primarily by data center demand, which clocked in at $39.1 billion, up 73% from last year.
Gaming also saw solid momentum, with $3.8 billion in revenue—fueled by new GeForce RTX 50 series cards and stronger seasonal sales. This tells me Nvidia is still firing on all cylinders across its product lines, not just AI.
Earnings per share came in at $0.96 adjusted, beating estimates of $0.93. Gross margins stayed strong too—61% non-GAAP, even after absorbing some painful charges.
The Big Hit: China and the H20 Write-Down
Now here’s the catch—and it’s a big one.
Nvidia was forced to take a $4.5 billion inventory charge related to its H20 chip, which was developed specifically for the Chinese market to comply with U.S. export restrictions. That chip is now just sitting on shelves. Why? Because the U.S. government has gotten even tougher about what kinds of AI chips can be exported to China.
That single decision has now cost Nvidia billions—and could lead to as much as $8 billion in lost revenue over the next year. It’s the most glaring example yet of how geopolitical tensions are bleeding into the bottom line, even for a company as dominant as Nvidia.
It’s also a warning sign for all investors: being the global leader in AI hardware doesn’t insulate you from international politics. If anything, it puts a target on your back.
CEO Messaging: Huang Gets Real
Jensen Huang didn’t sugarcoat it. In the earnings call, he was blunt about the risk: U.S. export controls could end up hurting America’s leadership in AI, not protecting it. He made the point that by locking China out, the U.S. is effectively forcing them to go build their own chips—and fast.
And he’s right. China will not sit idle while Nvidia is restricted. Domestic chip initiatives are already ramping up across Asia, and we’re likely to see competition intensify from non-U.S. players. Long-term, that could dent Nvidia’s global dominance.
But Huang is also playing offense. He’s focused on building out partnerships in the Middle East, Europe, and elsewhere—anything to keep the revenue flywheel turning outside of China.
Strategic Expansion: Sovereign AI and the Blackwell Push
This quarter also showed that Nvidia isn’t just reacting to pressure—they’re executing smart plays.
For one, their Sovereign AI strategy is taking off. Countries like Saudi Arabia and the UAE are pouring money into national AI infrastructure, and Nvidia is right there supplying the brains. These deals are multi-billion dollar opportunities and help offset some of the risk from China.
They also introduced the Blackwell architecture and NVLink Fusion, two critical pieces for next-gen AI systems. These aren’t just hardware updates—they’re foundational tech that will keep Nvidia embedded deep in the AI stack for years.
Plus, by offering end-to-end ecosystems (chips, networking, software), Nvidia makes it harder for companies—or governments—to switch to someone else.
What the Market Thinks
The market liked what it saw. Shares jumped about 5% in after-hours trading, and investor sentiment is still extremely bullish.
But I think we’re approaching a tipping point. At some point, the valuation will need to absorb the full impact of China restrictions, slowing growth from insane double-digit rates, and potential new competition. Nvidia is priced for perfection—and while they’ve delivered near-perfect results, the macro picture is getting murkier.
That’s not a short-term bearish take. Just a reminder: no stock goes up forever without hitting some turbulence.
Risks I’m Watching
China Retaliation or Escalation
If U.S. chip restrictions tighten even further, or if China strikes back by restricting rare earth minerals or local licenses, Nvidia could see even more downside risk in Asia.Over-Reliance on AI Infrastructure Growth
Yes, AI is booming—but companies are already starting to optimize spend. If hyperscalers like Microsoft or Meta hit budget caps, Nvidia could feel the lag in orders.Supply Chain Disruption
Nvidia still depends heavily on TSMC and other foundries for production. Any supply chain kink—geopolitical or otherwise—can hit margins fast.Competition from Custom Chips
Big tech players are all building their own custom silicon (Google with TPU, Amazon with Trainium). If this trend continues, Nvidia could lose exclusivity on some large AI deployments.
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What I’m Optimistic About
AI is real, and Nvidia is still the default pick-and-shovel for the boom. Even with geopolitical headwinds, demand for LLM training, autonomous systems, and edge AI is only growing.
Software moat is underrated. Tools like CUDA and the overall developer ecosystem are incredibly sticky. It’s not just about chips anymore—it’s about full-stack control.
Geographic diversification is happening. Nvidia is making smart moves to limit dependency on any one market, and I think they’ll keep expanding in that direction.
Product roadmap looks solid. Blackwell, NVLink, and future chip families are already lined up, meaning they’re not relying on just one product cycle to keep revenue up.
Nvidia is still the king of AI, and this quarter proves it again. They’re printing cash, executing well, and innovating faster than the competition. But the risks are growing—and they’re not small.
If you hold Nvidia long term, keep an eye on macro and policy moves. Short term, it’s still a monster. Long term, the game will get harder. But if anyone can play it at the highest level, it’s Nvidia.
Stay sharp.
DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.