🤖 NVIDIA Surges Despite China
Blackwell ramps as global AI demand stays hot
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NVIDIA just posted another jaw-dropping quarter: $44 billion in revenue, up 69% year-over-year.
But this time, the story wasn’t just about growth. It was about friction.
While demand for AI infrastructure remains “incredibly strong,” geopolitical headwinds are hitting harder. The latest US export ban triggered a $4.5 billion inventory write-down and left an $8 billion hole in next quarter’s guidance.
CEO Jensen Huang issued a warning on the call:
“China’s AI moves on with or without US chips.”
The stakes are rising.
NVIDIA is powering ahead, but the runway is bumpier than it used to be.
Today at a glance:
NVIDIA’s Q1 FY26.
Three scaling laws.
Key quotes from the call.
What to watch looking forward.
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1. NVIDIA Q1 FY26
NVIDIA’s fiscal year ends in January, so the April quarter was Q1 FY26. I’m focusing on sequential growth (Q/Q) to capture momentum.
Income statement:
Revenue jumped +12% Q/Q to $44.1 billion ($0.8 billion beat).
⚙️ Data Center grew +10% Q/Q to $39.1 billion.
🎮 Gaming surged +48% Q/Q to $3.8 billion.
👁️ Professional Visualization was flat Q/Q to $0.5 billion.
🚘 Automotive declined -1% Q/Q to $0.6 billion.
🏭 OEM & Other dropped -12% Q/Q to $0.1 billion.
Gross margin was 61% (-13pp Q/Q).
Operating margin was 49% (-12pp Q/Q).
Non-GAAP operating margin was 53% (-12pp Q/Q).
Non-GAAP EPS $0.81 ($0.06 beat).
Cash flow:
Operating cash flow was $27.4 billion (62% margin).
Free cash flow was $26.1 billion (59% margin).
Balance sheet:
Cash and cash equivalents: $53.7 billion.
Debt: $8.5 billion.
Q1 FY26 Guidance:
Revenue +2% Q/Q to $45.0 billion ($0.7 billion miss).
Gross margin 72% (+11pp Q/Q).
So, what to make of all this?
NVIDIA is still firing on all cylinders, but geopolitical friction is catching up. The company beat expectations again. But the big story was China.
⚙️ Data Center remains the powerhouse, generating $39.1 billion (up 73% Y/Y and 10% Q/Q). That’s nearly 90% of total revenue. Cloud hyperscalers drove demand, with Blackwell architecture ramping across all segments. Compute sales hit $34.2 billion (+5% Q/Q), while networking surged 64% sequentially to $5.0 billion thanks to growing NVLink adoption and Spectrum-X momentum.
⚡ Compute: Blackwell shipments accelerated across cloud, enterprise, and sovereign customers. NVIDIA also began test shipments of its GB300 NVL72 AI supercomputer, signaling another leap in large-scale AI infrastructure.
🔌 Networking: Continued strong growth, driven by NVLink and Ethernet AI deployments. This is a major piece of NVIDIA’s integrated system strategy.
🎮 Gaming: A surprise highlight. Revenue jumped 48% Q/Q and 42% Y/Y to a record $3.8 billion, fueled by the fastest-ever ramp of Blackwell gaming GPUs. It beat analyst expectations by over 30%.
👁️ Professional Visualization: Flat Q/Q at $511 million, up 19% Y/Y. Adoption of Ada RTX workstations for AI-accelerated workflows in design, healthcare, and simulation continues to grow steadily.
🚘 Automotive: Revenue came in at $567 million, up 72% Y/Y but down 1% Q/Q. Autonomous vehicle platforms and digital cockpit solutions remain key drivers, with new partnerships continuing to emerge.
📉 Margins temporarily under pressure. A $4.5 billion H20 inventory write-down (linked to US export controls) pushed gross margin down. Excluding the charge, non-GAAP gross margin was 71%. Management expects a rebound to 72% next quarter and is still targeting mid-70s by year-end.
🌏 China fallout hits hard. NVIDIA missed $2.5 billion in Q1 H20 sales and projected an $8 billion loss in Q2 due to the same issue. Huang warned that the long-term implications could be serious, especially as Chinese firms like DeepSeek gain ground. Regulatory scrutiny in China is also intensifying.
🔮 Outlook still solid. Q2 revenue is projected at $45 billion (+2% Q/Q) despite the $8 billion impact from H20 sales. Blackwell’s ramp and sovereign AI cloud projects are expected to continue driving growth.
⚠️ Risks are mounting. US-China trade tensions, stricter export controls, rising competition from AMD and in-house AI chips, and regulatory backlash could all weigh on NVIDIA’s next leg of growth.
Big picture: NVIDIA is still the undisputed AI leader, but the game is evolving. Blackwell momentum is strong, and global demand is resilient—but with geopolitical uncertainty rising, the road ahead looks less effortless than before.
2. Recent developments
🇨🇳 Losing access to China
NVIDIA may have just posted a record quarter, but the tone was anything but celebratory. The US government’s April ban on H20 chip exports to China blocked $2.5 billion in revenue for Q1, with another $8 billion revenue loss for Q2.
Huang didn’t shy away from the geopolitical stakes:
“The $50 billion China market is effectively closed to US industry.”
“The H20 export ban ended our Hopper Data Center business in China. We cannot reduce Hopper further to comply.”
“Shielding Chinese chipmakers from US competition only strengthens them abroad and weakens America's position.”
Rather than downplay the impact, Huang warned that export restrictions are accelerating China’s innovation:
“Export restrictions have spurred China's innovation and scale. The AI race is not just about chips. It's about which stack the world runs on.”
Huang argued that US policy is built on a flawed assumption:
“The US has based its policy on the assumption that China cannot make AI chips. That assumption was always questionable and now it's clearly wrong.”
NVIDIA is still exploring “limited options” to serve China under the new rules, but nothing is ready for market.
🌐 Sovereign AI Is Accelerating
While China is cut off, global demand is going vertical.
Huang pointed to a global wave of AI infrastructure investment—what he calls Sovereign AI—as a key growth engine for NVIDIA:
“Countries are racing to build national AI platforms to elevate their digital capabilities. […] Japan, Korea, India, Canada, France, the UK, Germany, Italy, Spain, and more are now building national AI factories to empower startups, industries and societies.”
NVIDIA is partnering with governments and companies around the world—from Taiwan to Sweden—to build AI factories and supercomputing clusters at unprecedented scale.
3. Key quotes from the earnings call
CFO Colette Kress:
On Data Center growth:
“We delivered another strong quarter with revenue of $44 billion, up 69% year-over-year, exceeding our outlook in what proved to be a challenging operating environment. […] AI workloads have transitioned strongly to inference, and AI factory buildouts are driving significant revenue. Our customers’ commitments are firm.”
She emphasized that Blackwell now represents nearly 70% of Data Center compute revenue, signaling that the transition from Hopper is nearly complete.
On customer segments:
Kress provided updates on the three major customer categories:
☁️ Cloud Service Providers account for just under 50% of Data Center revenue, ramping Blackwell deployments at massive scale (Amazon, Microsoft, GCP, Oracle).
💬 Consumer Internet companies like Meta, xAI, and Google Cloud driving adoption of Spectrum-X networking.
🏢 Enterprises deploying co-pilots, custom LLMs, and agentic AI across sectors including financial services, healthcare, and retail.
On Blackwell demand and deployment:
“Our Blackwell ramp, the fastest in our company's history, drove a 73% year-on-year increase in Data Center revenue. […] Microsoft, for example, has already deployed tens of thousands of Blackwell GPUs and is expected to ramp to hundreds of thousands of GB200s with OpenAI as one of its key customers.”
GB200 systems are being shipped at scale:
“On average, major hyperscalers are each deploying nearly 1,000 NVL72 racks—or 72,000 Blackwell GPUs—per week.”
She also previewed the next wave:
“Sampling of GB300 systems began earlier this month at the major CSPs, and we expect production shipments to commence later this quarter.”
On export restrictions and the China impact:
“Losing access to the China AI accelerator market, which we believe will grow to nearly $50 billion, would have a material adverse impact on our business going forward and benefit our foreign competitors in China and worldwide.”
She clarified that Q2 guidance reflects a full $8 billion loss in H20 orders, and future China shipments remain uncertain. Yes, without the export restrictions, Q2’s revenue guidance would have been $53 billion. 👀
On reasoning models and inference surge:
“Inference serving startups are now serving models using B200, tripling their token generation rate and corresponding revenues for high-value reasoning models such as DeepSeek-R1. […] Developer engagements increased with adoption ranging from LLM providers such as Perplexity to financial services institutions such as Capital One, who reduced agentic chatbot latency by 5x.”
Inference is the new battleground. The surge in token generation is driving real revenue for NVIDIA’s customers, particularly in reasoning-heavy use cases. From startups to banks, everyone wants faster, smarter models—and they’re turning to NVIDIA to deliver.
4. What to watch looking forward
Capital allocation: Buybacks vs. Buildouts
NVIDIA just set a new record for capital return, buying back $14 billion in Q1 alone. Management clearly sees more upside ahead—but as sovereign AI projects and global demand accelerate, some investors may wonder: will buybacks compete with investments in capacity, M&A, or onshoring?
Valuation: Already priced for perfection?
We recently reviewed Wall Street’ top picks in the latest 13F filings for Q1 2025. Atreides (Gavin Baker) and Viking (a Tiger Cub) increased their NVDA allocation.
The trend? Funds aren’t buying aggressively anymore, but they’re not selling either. NVDA remains one of the most widely held stocks. That said, now that NVDA makes up nearly 7% of the S&P 500, most top money managers are underexposed relative to the index.
At 32x forward earnings, NVIDIA trades close to Microsoft and well above most chip peers. But this isn’t a dot-com rerun: $20 billion in net income last quarter, up 31% Y/Y, proves the profits are real—even after a massive write-down. Still, with China off the table, expectations are sky-high.
If you’re a regular reader, you already know the key risks:
Cycles boom and bust: NVIDIA’s growth relies on sustained demand. But if the AI buildout slows—even temporarily—revenues could compress fast.
Geopolitics are tightening: Options for China are limited, and the full impact of US tariffs on NVIDIA’s supply chain is still unfolding.
Customer concentration: Hyperscalers still buy, while simultaneously building their own AI chips.
🌎 The infrastructure race is on
If we’ve learned anything from Big Tech’s recent earnings, it is that CapEx is still rising.
While China is closed, the rest of the world is wide open. Huang pointed to 100+ NVIDIA-powered AI factories already underway across Saudi Arabia, Taiwan, the UAE, and beyond:
“Every nation now sees AI as core to the next industrial revolution.”
NVIDIA’s opportunity isn’t just enterprise software—it’s powering national infrastructure. From Blackwell racks to sovereign clouds, the company is positioning itself as the foundation layer for AI across both private and public sectors.
The road ahead won’t be smooth, and policy friction is real.
But across the board, one view stands out: It’s still early days.
That’s it for today!
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Disclosure: I own AAPL, AMD, AMZN, GOOG, META, and NVDA in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
NVDA profit margin is astonishing 👍