Nvidia (NVDA 1.41%) added an eye-popping $2.5 trillion to its market capitalization since the start of 2023, thanks to surging sales of its data center chips, which are the best in the world for processing artificial intelligence (AI) workloads. However, Nvidia stock is down 22% from its all-time high as investors try to navigate growing tensions between the U.S. and its trading partners.
Although semiconductors are exempt from President Donald Trump's tariffs, investors fear trade tensions could cause an economic slowdown, which will force Nvidia's customers to spend less money on chips and components.
Based on the recent guidance investors received from some of the most powerful AI companies, there is no sign of a spending slowdown just yet. But investors will receive an important update on May 28, when Nvidia releases its financial results for its fiscal 2026 first quarter (ended April 27). Here's why I think its stock will soar following the report.
Image source: Nvidia.
Nvidia's top customers are still spending big
Nvidia's H100 graphics processing unit (GPU) was the hottest data center chip on the market for AI developers in 2023, giving the company a staggering 98% market share that year. It continued to dominate sales in 2024, but developers are now lining up for Nvidia's newer chips, which are based on its Blackwell and Blackwell Ultra architectures.
The new Blackwell Ultra GB300 -- which will start shipping in the second half of this year -- can deliver up to 50 times more performance than the H100 in certain configurations, making it ideal for next-generation "reasoning" AI models. These new models spend more time "thinking" in the background than traditional large language models (LLMs), cleaning up potential errors to deliver the most accurate responses to the end user.
However, Nvidia CEO Jensen Huang says reasoning models need 100 times more computing power to offset the additional tokens (words, punctuation, and symbols) they consume, and to speed up the thinking process -- otherwise, users might abandon them because they are too slow to render responses. This growing need for additional computing capacity will help support Nvidia's sales for years to come, and global trade tensions are unlikely to stand in the way.
Meta Platforms, Amazon, Microsoft, and Alphabet are four of Nvidia's top customers. They entered 2025 expecting to spend approximately $320 billion combined on AI data center infrastructure and chips, but Wall Street was recently concerned that tariffs would impact their core businesses, and force them to lower their forecast capital expenditures (capex).
However, those four companies recently reported their latest quarterly financial results, and none of them slashed their capex plans. In fact, Meta Platforms revised its forecast capex range upward to between $64 billion and $72 billion, from a previous range of $60 billion to $65 billion.
NASDAQ: NVDA
Key Data Points
Nvidia's upcoming report could be another blowout
Nvidia's guidance suggests its fiscal 2026 first-quarter revenue will come in at around $43 billion, representing 65% growth compared to the year-ago period. If previous quarters are anything to go by, the data center segment will represent around 90% of the company's total revenue. This is where sales of AI GPUs and components are accounted for.
According to Wall Street's consensus estimate (provided by Yahoo! Finance), Nvidia could also deliver earnings per share (EPS) of $0.89 during the first quarter, which would be a 46% increase from the year-ago period. This is an important number for investors to watch, because it influences the company's stock price and valuation.
Wall Street analysts will also be laser-focused on Nvidia's guidance for the current fiscal 2026 second quarter, because it will tell them whether the company expects at least some customers to start pulling back on their AI spending due to the economic uncertainty triggered by global trade tensions. Analysts will be looking for total revenue guidance of around $46.4 billion, based on the consensus compiled by Yahoo!. A forecast below that figure could result in a sell-off in Nvidia stock.
Nvidia stock could soar with the help of its Q1 results
Although investor fears about economic headwinds pushed Nvidia stock down 22% from its all-time high, I think its Q1 financial report on May 28 could set the stage for a sustained upside move, especially if Huang officially puts those concerns to bed.
Valuation is a key reason why. Based on the company's fiscal 2025 EPS of $2.99, its stock trades at a price-to-earnings (P/E) ratio of nearly 40 as of this writing, which is a steep discount to its 10-year average of 59.7.
Plus, Wall Street expects Nvidia to deliver $4.41 in EPS during fiscal 2026, placing the stock at a forward P/E ratio of 26.4. In other words, the stock would have to soar by 126% over the next year just to trade in line with its 10-year average P/E ratio of 59.7.
NVDA PE Ratio data by YCharts
But the long-term picture looks even more exciting. At Nvidia's GTC conference in March, Huang told the audience he expects annual data center spending to reach $1 trillion by 2028, primarily because of the computing power required by reasoning models.
On that note, Nvidia might even provide an update on its upcoming Rubin GPU architecture on May 28, which could deliver a further increase in performance of 3.3 times compared to Blackwell Ultra. It's expected to officially launch sometime next year, and it'll pave the way for developers to create even more advanced reasoning models.
Simply put, I think the May 28 report will not only put short-term sales concerns to bed, but it will also remind investors that Nvidia is looking to dominate the AI industry for years to come.
