Nvidia (NVDA +4.30%) may be the most watched stock in the market, as it's a bellwether for artificial intelligence (AI) buildout progress. Most of Nvidia's revenue comes from graphics processing units (GPUs) installed in data centers to handle AI workloads. As long as Nvidia continues posting solid results, investors can assume that AI investments are moving full speed ahead.
Nvidia recently reported first-quarter fiscal year 2026 results (ended April 28), which were spectacular. However, investors must keep an eye on a few items. Even with some headwinds popping up, is the stock still a buy today?
Image source: Nvidia.
The U.S. government created some artificial headwinds for Nvidia in Q1
Nvidia's GPUs and the software that supports them are second to none, which is how Nvidia has captured a market share topping 90% in the data center GPU market. Its dominance is like nothing seen in the hardware space, and it bodes well for investors.
Nvidia is also growing at a pace never seen for a company of its size. In Q1, Nvidia's revenue rose 69% year over year to $44 billion. However, that pace is expected to slow a bit next quarter, with revenue projected to be about $45 billion, indicating 50% revenue growth.
NASDAQ: NVDA
Key Data Points
The reason Nvidia's revenue growth is slowing has to do with U.S. government export restrictions. On April 9, Nvidia was informed that it couldn't sell its H20 chips (designed specifically to meet the criteria of previous U.S. export restrictions) without a license, effectively ending the sale of these chips. This caused Nvidia to charge $4.5 billion for excess inventory and fail to realize $2.5 billion in revenue during the first quarter. Before the restrictions, Nvidia sold about $4.6 billion of H20 chips. They also projected sales of around $8 billion in H20 chips during Q2.
That would indicate Nvidia's Q2 growth would have been around $53 billion, which would have indicated 77% growth. If you add back in the $2.5 billion in eliminated revenue in Q1, Nvidia's growth rate would have been 79%. For reference, Nvidia's growth during Q4 was 78%, indicating that Nvidia's clients are still spending a lot of money on GPUs, and the growth rate isn't really slowing.
This is an extremely bullish indication, as the only thing stopping Nvidia this quarter (and next) is government export restrictions.
While investors didn't see a gigantic leg up like they're used to seeing with Nvidia, the market reacted positively to the news and sent Nvidia's stock higher after reporting earnings. But does this make it a stock worth buying here?
Nvidia's stock isn't cheap, but investors need to pay up for quality
Because of the one-time charges related to writing off the H20 inventory, Nvidia's trailing-12-month earnings per share (EPS) metric is going to be a bit off, which essentially eliminates the usefulness of the trailing price-to-earnings (P/E) ratio over the next year. Instead, I'll use Nvidia's forward P/E to value the stock.
Nvidia isn't the cheapest stock in the world, trading at 33 times forward earnings, but then again, few stocks are growing as rapidly and consistently as Nvidia.
NVDA PE Ratio (Forward) data by YCharts. PE Ratio = price-to-earnings ratio.
Despite the headwind caused by the U.S. government, Nvidia's core business is still intact and doing incredibly well. Demand for GPUs remains high, with no signs of slowing. I still think Nvidia is a solid buy here, and investors need to have the mindset of holding the stock for three to five years, as AI tailwinds are still blowing fiercely in favor of Nvidia.
