We’re raising our Nvidia price target after a great quarter and rosy guidance

Nvidia shares jumped in extended trading Wednesday evening after the AI chipmaker reported better-than-expected quarterly revenue and earnings. It also provided an upbeat view of its current second quarter despite restrictions on what it can sell to China. Revenue in its fiscal 2026 first quarter increased 69% year over year to $44.06 billion, beating the $43.31 billion the Street was looking for, according to estimates compiled by data provider LSEG. Adjusted earnings per share increased 57% year over year to 96 cents in the three-month period ended April 27, exceeding the consensus of 93 cents, LSEG data showed. Both EPS and the quarterly estimate excluded charges related to the H20 chip ban in China. Why we own it Nvidia’s high-performance graphic processing units (GPUs) are the key driver behind the AI revolution, powering the accelerated data centers being rapidly built around the world. But Nvidia is more than just a hardware story. Through its Nvidia AI Enterprise service, Nvidia is building out its software business. Competitors : Advanced Micro Devices and Intel Most recent buy : Aug 31, 2022 Initiation : March 2019 Bottom line Nvidia’s results are proof that there has been no slowdown in the buildout of AI. During the post-earnings conference call, CEO Jensen Huang pointed out four positive surprises since the company’s annual GTC event in March that have driven a surge in demand. The first surprise was advancements in reasoning AI, which is included in popular large language models like ChatGPT. According to Huang, reasoning models are creating a step function surge in inference demand, which in turn increases the demand for chips because they are extremely compute-intensive. Another positive surprise was the rescinding of the so-called AI diffusion rules, which ended right at the same time that countries woke up to the importance of AI as an infrastructure, according to Huang. A third positive surprise was the development of enterprise AI agents, which he called “game-changing.” The fourth and last surprise is related to industrial AI, and all the on-shoring manufacturing and the building of plants around the world, creating demand for the Nvidia Omniverse. These are important callouts, as they underscore the rapid pace of advancements in artificial intelligence, which continues to drive strong demand for Nvidia’s chips. The growing integration of AI into everyday life further reinforces this trend. This is clear evidence that the AI story is still in its early innings. NVDA YTD mountain Nvidia YTD Accordingly, we’re raising our price target to $170 from $165. But given Nvidia’s rapid 55% stock rise from its 52-week low on April 4 through Wednesday’s close of $134, we are keeping our hold-equivalent 2 rating. In after-hours trading, shares added another 5%. Commentary Heading into earnings , some of our key questions centered on the Blackwell ramp, Sovereign AI, hyperscaler demand, and developments in China. 1. Blackwell : After some early supply chain issues, the ramp of the new Blackwell superchip called GB200 has gone well. Despite the vast complexities of building it, Nvidia saw a significant improvement in manufacturing yields and an increase in rack shipments to customers. Blackwell contributed 70% of the $34.16 billion of data center compute revenue in the quarter. Overall, data center revenues, which also included networking sales, increased 73% year over year to $39.1 billion, slightly missing estimates of $39.36 billion, according to FactSet. Nvidia is always innovating its chipsets, making them more powerful and efficient with every new iteration, but also backwards compatible. The next product on its roadmap is the Blackwell Ultra or GB300. The company said samplings of these systems began earlier this month at the major cloud service providers, and it expects production shipments to start later this quarter. Nvidia is anticipating a smooth ramp of the Blackwell Ultra based on what it learned from Blackwell. 2. Sovereign AI: During the call, Huang called sovereign AI “a new growth engine” for the company as countries around the world build out national AI factories. “Countries are racing to build national AI platforms to elevate their digital capabilities,” the CEO said. Later, he likened the need for countries to invest in AI infrastructure to their past investments in electricity and the internet. Rules on how countries are purchasing AI chips from Nvidia have been dynamic lately, with President Donald Trump ending the AI diffusion rules in favor of a new policy to promote AI tech with trusted partners. One way is through trade agreements, like what we saw out of the Middle East a few weeks ago. Next up could be Europe. Huang will be traveling through the continent next week and…