Nvidia may have been under pressure this year due to factors outside its control, but investors shouldn't ignore these developments.
The demand for AI chips remains solid, as evident from the quarterly reports and announcements of some key AI companies.
The stage seems set for Nvidia to deliver stronger-than-expected earnings on May 28.
Nvidia(NASDAQ: NVDA) stock has been under pressure so far this year, losing over 19% of its value as of this writing, thanks to factors outside the company's control that have dented investor confidence in the stock despite its impressive results in recent quarters.
Export controls on shipments of Nvidia's chips to foreign countries, the potential fallout of the tariff-fueled trade war, and concerns that spending on artificial intelligence (AI) infrastructure could slow down are all reasons this once high-flying chipmaker has been underperforming in 2025. However, recent developments suggest that it is on course to maintain its healthy pace of growth.
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In this article, we will take a closer look at the factors that could help Nvidia defy Wall Street's expectations and send the stock soaring when it releases its fiscal 2026 first-quarter results on May 28.
These developments suggest that AI chip demand remains healthy
The data center business produces a massive chunk of Nvidia's revenue, with the segment accounting for 88% of the company's top line in fiscal 2025 (which ended on Feb. 26). So, the health of this business plays a central role in determining Nvidia's financial performance. The good part is that the recent quarterly results from its semiconductor peers suggest that the demand for AI-focused data center chips remains strong.
Taiwan Semiconductor Manufacturing(NYSE: TSM), popularly known as TSMC, released its first-quarter 2025 results in April and said that it expects revenue from sales of AI chips to double this year. Nvidia gets its chips manufactured by TSMC, and the latter points out that it hasn't seen any change in customers' behavior despite the tariff-related uncertainty.
Moreover, TSMC reiterated its 2025 capital expenditure guidance of $38 billion to $42 billion. The company points out that it will spend 70% of that budget on advanced process technologies that will help it meet the strong demand for AI chips. Also, it is expecting a slight acceleration in revenue growth in the current quarter, and that bodes well for Nvidia since it is one of the largest customers of the Taiwan-based foundry giant.
And semiconductor manufacturing equipment supplier Lam Research also delivered impressive results recently that beat expectations. The company had strong guidance that was well ahead of expectations, signaling an improvement in growth from the robust demand for AI chips. What's more, Lam is anticipating its top line to increase by around 63% over the next four years, suggesting that it expects the favorable demand to continue.
Blackwell is set to drive solid growth for Nvidia
The concerns about a potential drop in AI infrastructure spending may be overblown, as evident from the recent news from key cloud service providers. Alphabet, for instance, says that it became the first cloud provider to offer Nvidia's latest Blackwell processors. Moreover, the Google parent has reaffirmed its $75 billion capital expenditure forecast for 2025, which would be an increase of 43% from last year, as it looks to shore up its AI capabilities by investing in the latest hardware.
Oracle has started deploying Nvidia's Blackwell processors as well to power its cloud infrastructure and meet the growing demand for reasoning models and agentic AI applications. The company intends to build Oracle Cloud Infrastructure (OCI) Superclusters that will be equipped with more than 100,000 Blackwell graphics cards.
And the GPU leader is on track to win big from the $500 billion Project Stargate, led by OpenAI and SoftBank. Nvidia is expected to supply 400,000 of its AI chips for the first Stargate data center. It sells the base variant of its Blackwell B200 chip for $30,000 to $40,000 apiece, so it could witness a massive boost in its business as the Stargate Project is scaled up to its full size of 10 AI data centers.
In all, it looks like the demand for Blackwell processors that Nvidia started selling in the fourth quarter of fiscal 2025, generating $11 billion in revenue, is set to move the needle in a bigger way for the company when it releases its results on May 28.
Management has called for $43 billion in revenue for the first quarter of fiscal 2026, a jump of 65% from the prior year. The ramp-up in production of advanced AI chips by its foundry partner TSMC along with the deployment of the Blackwell chips by major cloud service providers suggest that it could indeed meet or even exceed its expectations.
An earnings beat along with better-than-expected guidance could turn out to be the much-needed catalyst for Nvidia stock, and the company seems ready to deliver on both fronts based on the points discussed above. That's why buying this AI stock before its upcoming earnings report could turn out to be a smart move considering that it trades at an attractive 25 times forward earnings right now.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Lam Research, Nvidia, Oracle, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
