Now that the market has had a few hours to digest NVIDIA's earnings for the first quarter of its fiscal year 2026, the emerging view is coalescing around a distilled nugget of thought: NVIDIA was able to holistically address investor concerns, but the corresponding euphoria remains capped by the idiosyncratic factors inherent in the earnings report - the consensus estimates for various line items became irrelevant when some analysts chose to incorporate H20-related headwinds, while others did not, rendering the overall beat/miss computation an exercise in futility.
Enough? - Nvidia $NVDA Earnings Recap
Ultimately this report is a big mess because of mis-matched analyst estimates with the China inventory write-off. Tough to read much into the beats and misses below as a result. No blow ups but not overly bullish either. https://t.co/yFFf61ExcH pic.twitter.com/vpPIa4PAnL
— Consensus Media (@ConsensusGurus) May 28, 2025
As a refresher, NVIDIA reported $44.06 billion in revenue for its fiscal Q1'26, beating the consensus estimate of $43.29 billion. Under the hood, however, its AI-critical data center revenue topped off at $39.1 billion, falling short of the $39.22 billion consensus estimate.
In Q1, following the Trump administration's decision to impose licensing requirements on NVIDIA's China-specific H20 GPU, the company incurred $4.5 billion in charges related to inventory write-offs and purchase commitments, which then hammered the GPU giant's gross margin to 61 percent. On an adjusted basis, which often provides a clearer picture by removing one-time inflows and outflows, NVIDIA's gross margin topped off at 71.3 percent vs. the 78.9 percent figure that the company recorded in last year's comparable period.
As far as guidance is concerned, NVIDIA now expects to record $45 billion in revenue for Q2, plus or minus 2 percent. The midpoint of this guidance fell short of the consensus estimate of $45.5 billion. Do note that NVIDIA's guidance for Q2 excluded ~$8 billion in H20-related sales.
This brings us to the crux of the matter. Wolfe Research has now penned an interesting note, arguing that "the pain trade for NVIDIA is higher."
Wolfe Research analyst Chris Caso correctly points out that NVIDIA's Q1'26 earnings report was able to address "all investor concerns," which included "rack production, China (now out of numbers) and AI diffusion (not being enforced)."
Caso also believes that NVIDIA's rate of rack shipments to customers is currently pushing ahead of its revenue run-rate, "and we would expect both to converge at some point."
On the whole, the Wolfe Research analyst believes NVIDIA was under-owned heading into its Q1 earnings, which means that the pain trade remains in the bullish direction:
"Net, we think the consensus view had been to own this stock for 2H and CY26, but the concerns heading into the report caused some to wait out this report. With the concerns now addressed, the stock up and a bullish outlook for 2H, we think the pain trade for NVDA is higher."
About the author: Writing is my one incontrovertible passion. Over the past six years, he has authored over 2,200 distinct articles on financial and tech-related topics, spanning nearly 1 million words. And he has been a member of Wcctech mobile team since 2025. As an alumnus of the University of Toronto, Rotman Commerce Program, I bring nuance, in-depth knowledge, and a unique perspective to every topic that I cover. When I'm not writing, I'm traveling the world, exploring hidden confectionaries and restaurants as an aspiring food connoisseur.
Follow Wccftech on Google to get more of our news coverage in your feeds.
