May 28 will be an important day for the stock of Nvidia (NVDA +1.23%). That's when it reports fiscal 2026 first-quarter results. While earnings reports may not be the most exciting activity, they are one of a handful of times each year that investors get information about a company.
A lot has occurred since the last time we received an update from Nvidia, and the pessimism surrounding the stock heading into this date is noteworthy. I think the pessimism will be unnecessary and that the stock could be primed to explode higher following the earnings announcement on May 28.
Image source: Nvidia.
Nvidia's largest clients have already hinted at how good its results will be
Why am I so confident that the company will post solid results for the first quarter? Its primary clients have already confirmed that they will keep the status quo.
Nvidia makes graphics processing units (GPUs), which are chips that specialize in complex computational tasks, such as gaming graphics (their original use) and training AI models (their current most-common use). The company has the best GPUs available, which has helped it attain an impressive 90%-plus market share in data center GPUs.
The biggest concern heading into the quarterly report is that the chipmaker's largest clients have slowed their purchases. Because there are still many high expectations built into the stock price, investors are worried it won't live up to expectations.
However, after hearing from the AI hyperscalers that are large buyers of the company's GPUs, it's clear that data center spending is going full steam ahead. And one -- Meta Platforms -- has even upped its capital expenditure (capex) guidance.
Nvidia's sustained growth is crucial since the stock's current valuation assumes that its rapid increase will continue.
NVDA PE ratio (Forward) data by YCharts.
The spread between the trailing price-to-earnings ratio (P/E) and the forward P/E indicates how much analysts expect earnings to grow this year. With the stock trading at 38.7 times trailing earnings and 25.7 times forward earnings, that projects about 51% growth.
However, this will be the last quarter of the year when Nvidia's P/E remains normal. Because of a change in export restrictions to China, it had to take a $5.5 billion write-off this quarter, so investors shouldn't be alarmed when it reports a drop in profits. The real number to keep an eye on is growth, and that's expected to be strong for years to come.
The four-year outlook is strong.
While one-year returns are nice, keeping focused on the three- to five-year horizon gives investors an edge. One guiding light that CEO Jensen Huang gave them is that Nvidia expects data center capex to rise from $400 billion in 2024 to $1 trillion by 2028.
That's monster growth, and if it turns out to be true, it doesn't matter what happens to the stock after the first quarter since the long term will still be incredibly promising.
NASDAQ: NVDA
Key Data Points
Over the past 12 months, the company has generated $115 billion from its data center division, which indicates that Nvidia gets around 30% of total spending on data center infrastructure. If Huang's $1 trillion projection turns out to be true and his company can maintain a 30% hold on that spending, it would generate $300 billion from data center GPU sales.
That would be incredible growth, making it a solid stock. Even if expectations fall short of that lofty figure, Nvidia is still the top dog in the GPU world, and with a massive amount of AI infrastructure still to be built, it's an excellent investment.
