NVIDIA Corporation (NVDA.US) "Strongest Ever" Financial Report Encounters Cold Reception: $78 Billion Guidance Far Exceeding Expectations, Why is the Market Still Worried?

Notice that NVIDIA Corporation's fourth quarter financial report not only significantly exceeded expectations, but its performance guidance even surprised the most bullish analysts. The company, led by Huang Renxun, expects sales to reach $78 billion in the next quarter, well above Wall Street's forecast of $72.8 billion. However, the company's stock price only rose by about 1% in pre-market trading on Thursday. Wall Street analysts believe there is still more room for the stock price to rise; it just may need more time. JP Morgan analyst Harlan Sohl wrote in a report to clients, "NVIDIA Corporation clearly has all systems firing on all cylinders internally and across its vast supply chain, continuing to ramp up production of the Blackwell platform (GB200+GB300) while also preparing for the upcoming launch of its Vera Rubin platform (scheduled for the second half of 2026). Nevertheless, the stock price response indicates investors are still unsatisfied, we believe this can be attributed to the ongoing uncertainty in the growth trajectory of NVIDIA Corporation's data center business in the 2027 calendar year, considering the significant expansion of capital expenditures by its major customers (the total capital expenditure of the top five US hyperscalers is expected to increase by approximately 70% year-over-year in the 2026 calendar year to over $650 billion) and the significantly compressed free cash flow situation. However, taking a step back, the stock price trades at approximately 19 times Wall Street's 2027 calendar year expected earnings per share before the earnings call, in our view NVIDIA Corporation is like a tightly wound spring that has tightened even further after this performance announcement." JP Morgan maintained a "overweight" rating on NVIDIA Corporation and raised its target price from $250 to $265 after the earnings announcement. Morgan Stanley analyst Joseph Moore shared a similar view, expressing "surprise" at the lackluster response to the stock price as the performance was "the largest and most purely above-expectation and above-guidance in the history of the semiconductor industry." Morgan Stanley gave NVIDIA Corporation an "overweight" rating and raised its target price from $250 to $260. Moore wrote in a report to clients, "We still emphasize that the long-term outlook is quite good, though we acknowledge that next year's growth will still be somewhat driven by capital markets." He added that questions about the free cash flow of hyperscalers may be partly the reason for the market's lukewarm response, but this could be alleviated by increasing the level of token monetization. Moore continued, "LLM front-end model developers aim to achieve computing power of hundreds of terawatts by 2029," "This will be challenging to pay for, but we continue to point out that the required computing demand is mainly for managing the growth of reasoning/tokens, rather than for idealized training clusters. NVIDIA Corporation believes that the cash issue will be resolved by AI Factory's cash flow far exceeding expectations - but this in turn requires token monetization to be better than expected. Although we do not blindly believe in the most optimistic five-year outlook, we do continue to believe that there are no signs of a pause in the current strong demand level." Sreeni Pajuuri, a capital markets analyst at Royal Bank of Canada, said that the market's tepid response suggests concerns about the revenue growth momentum peaking, but growth is unlikely to slow significantly. "While the year-over-year growth rate will eventually slow from the current (70%+) level, we expect strong double-digit growth to continue into the 2027 calendar year," Pajuuri wrote. "Our basic assumption is that hyperscale enterprise capital expenditures will gradually slow down, which we believe is largely reflected in the valuation." The bank reiterated its "outperform the market" rating on NVIDIA Corporation and raised its target price from $240 to $250. Other semiconductor analysts and individuals hold similar views. "The level of capital expenditure growth makes it likely that NVIDIA Corporation's performance will once again bring surprises," "I think this quarter just proved that. Large tech companies now account for slightly over 50% of the data center revenue mix (taking part of the market share), indicating that other sources of revenue are still healthy. The adoption of intelligent AI is rapidly accelerating, which is the most tangible hardware demand for the current AI promotion stage."