Nvidia keeps the AI party alive with a booming quarter and even better outlook

Nvidia reported strong quarterly results to close out its fiscal year on Wednesday; This was surpassed only by the chip giant's outlook for the current quarter, a sign that the AI boom is continuing apace. The company's revenue in the fourth quarter of fiscal 2026 hit $68.13 billion, up 73% from a year earlier, beating the $66.2 billion the Street was looking for, according to estimates compiled by data provider LSEG. Adjusted earnings per share (EPS) rose 82% to $1.62, beating the $1.53 consensus estimate, according to LSEG data. Shares of Nvidia were slightly lower in extended trading; each fell about 50 cents to $195.35. Shortly after the numbers were released, the stock traded above $200 per share. Even if we'd prefer to see initial gains continue, the subdued response isn't exactly a surprise. Big post-earnings moves are long overdue for Nvidia, which became routine in the early days of the AI boom. NVDA 1Y Mount Nvidia's stock performance over the last 12 months. Bottom Line Talk about a strong earnings report. Results were good, but the guidance for the current quarter is truly remarkable. Skeptics of the sustainability of the AI boom expect the party to stall. Nvidia made clear that the party's anger remains. Of course, Nvidia's quarterly revenue was nearly $2 billion more than expected. Even more impressive, the team's forecast for the quarter came in more than $5 billion ahead of estimates, even though the Street had time to factor in the hyperscaler's massive investment budgets this year. So analysts were right to raise their April quarter estimates in recent weeks. They didn't make them big enough. Equally notable, CFO Colette Kress said in the earnings call that Nvidia expects sequential revenue growth through 2026, which she expects will exceed the $500 billion revenue opportunity for its Blackwell and Rubin generation chips that CEO Jensen Huang announced in the fall. Blackwell is the current chip family and Rubin is ready for release later this year. “We believe we have inventory and supply commitments extending through calendar 2027 to meet future demand, including shipments,” Kress said. he said. As expected, Nvidia was asked about rising memory costs and whether this poses a threat to the company's ability to keep its impressive gross margin in the mid-70% range, an important level for investors (as we discuss in our preview next week). In response, Huang said the "single most important lever" Nvidia can use to protect its margins is to deliver "generational leaps" in performance. Our reading of this answer: If Nvidia's products are still the best game in town, it's easier to pass on any increases in input costs without having to take the hit on margins. Meanwhile, Kress also offered an encouraging detail on demand for Nvidia's legacy data center AI chips; We think this will help solve a big point of contention around hardware depreciation cycles. “Even Hopper and most of the six-year-old Ampere-based products are sold out in the cloud because Nvidia infrastructure is in high demand,” Kress said. By the fall, some of Nvidia's most important customers were under fire for extending amortization periods in what critics called financial engineering designed to inflate their earnings. It turns out that mainstream media outlets, from our colleagues at CNBC to The Wall Street Journal, have published in-depth examinations of a debate usually reserved for an accountant's office. We don't surprise those who are skeptical of extended depreciation schedules, but it's a reminder of why we preach the importance of listening to earnings calls and getting input from those with their boots on the ground. This doesn't mean we blindly accept anyone's word for it — there's almost always a conflict to be aware of — but when companies spend money, it's because they believe it will yield a positive return, period. The debate about the lifespan of these chips remains valid, although it has not received much attention lately. From where? The fact that six-year-old Ampere-generation chips are still in use is a testament to the confidence of Nvidia's customers, especially the cloud providers that handle much of its data center business. This means cloud providers—both giants like Microsoft and Amazon and neoclouds like CoreWeave—can buy with confidence knowing that even though Nvidia releases new and improved products at annual intervals, chips purchased today can generate revenue for many years into the future. There are questions about whether releasing new chips every year could lead to some customers deciding to "sit out" a cycle, leading to a vacuum in demand. But this helps us understand why we haven't seen it yet. Of course, older chips may not be suitable for cutting-edge AI initiatives, but not everything done in the cloud requires this. We think this will certainly remain the case going forward, as today's most advanced AI applications will be tomorrow's commonplace workloads. As a result, it is clear that as the demand for AI increases, so does the demand for Nvidia chips. Companies have recognized that not having a plan for AI is like not having a plan for a website in the early 2000s or a plan for mobile apps after the launch of the iPhone. To implement a plan, you need to think about computing, and you can't have a conversation about computing without involving Nvidia. While specialty chips like those made by Club-named Broadcom will find their way into certain applications as volume allows, we don't see Nvidia's status as the AI computing king changing any time soon. Kress' comments on demand are highly optimistic for the year ahead and, importantly, are supported by publicly announced spending intentions. As a result, we reiterate our $230 price target and equivalent 2 rating. We are still optimistic but looking for a better opportunity to upgrade. Commentary Data Center, by far the most important of Nvidia's five operating segments, saw revenue growth jump 75% year over year to $62.3 billion, better than the $60.7 billion the Street expected. In the data center unit, computing revenue increased 58% year over year to $51.3 billion, while network revenue increased 263% to $10.98 billion. Hyperscale customers accounted for just over 50% of revenue here. But we liked how Kress said in his preliminary remarks that "growth is driven by the rest of our Data Center customers due to revenue diversification." While we recognize that few companies on the planet can match the spending power of hyperscalers, an expanding demand base will be crucial to blunting the impact of any large customer pullbacks in the future. It was seen that gaming revenue increased by 47% year-on-year to $3.73 billion. However, it still fell short of estimates of $4.03 billion. The growth was driven by demand for the company's new Blackwell architecture. In the statement, the team noted that supply constraints are expected to be a headwind "in the first quarter of fiscal 2027 and beyond," which could be attributed to memory shortages. Professional Visualization revenue exceeded expectations, up 159%, driven by "extraordinary demand for Blackwell." Meanwhile, Automotive revenue increased 6% year over year, thanks to continued adoption of driverless platforms. OEM and Other segment revenue reached $161 million, an increase of 73% compared to the previous year. This unit at Nvidia covers partnerships with original equipment manufacturers, licensing, and other things not taken into account in other segments. Looking at guidance for the first quarter of fiscal 2027, management's outlook was well ahead of expectations. Revenue of $78 billion, plus or minus 2%, is well ahead of the LSEG consensus estimate of $72.6 billion. Adjusted gross margins are expected to be 75% plus or minus 50 basis points; That's better than the 74.5% estimate compiled by FactSet at the midpoint. Expectations for adjusted operating expenses in the first quarter of the fiscal year were $7.5 billion. The team is not assuming any China sales in this guidance, so any progress in trade talks between now and the end of the quarter is expected to be positive. (Jim Cramer's Charitable Trust consists of NVDA and AVGO. See here for a full list of stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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