The technology giant Nvidia just reported a great fourth quarter. The company operates on a January fiscal year. It comfortably beat analyst expectations, primarily because of the explosion in artificial intelligence infrastructure spending. Importantly, the largest U.S. data center companies just announced dramatic increases in artificial intelligence capital spending. Spending by the so-called hyperscalers will rise well over 50% to almost $700 billion in 2026.
Nvidia’s revenue reached $68.1 billion, a growth rate of 73% year over year. That exceeded the consensus estimate of around $66 billion. Data center revenue was up 75%, a huge beat. Earnings per share were also higher than expected. The market was looking for earnings of around $1.53. The reported number was $1.62. Nvidia’s gross margin was also outstanding at 75%. That indicates the company continues to have pricing power and appears to be largely unaffected by the shortage of high-bandwidth memory semiconductors.
Future guidance was also positive. Nvidia anticipates revenue of $78 billion for the first quarter of its current fiscal year. That is substantially above previous analyst forecasts of $75 billion. The strong revenue guidance was the key data point for Wall Street. Demand is so robust that the company now has visibility into 2027. The backlog now exceeds $500 billion. Nvidia’s latest accelerated computing architecture, Blackwell, is shipping at scale. Blackwell is significantly more efficient than the previous architecture, Hopper. Blackwell Ultra delivers 50 times more performance and a 35% reduction in cost per token. A token is a small unit of text that an AI model reads or generates.
Jensen Huang, Nvidia’s CEO, offered detailed information on the company’s newest accelerated computing system, Vera Rubin. This architecture will be 10 times more efficient than Blackwell. Huang said the launch of Vera Rubin is on track, with shipments of the new platform beginning in the second half of the year. The hyperscalers are introducing alternative chips to Nvidia’s accelerated computing semiconductors, but the market is growing so rapidly that Nvidia continues to deliver exceptional results.
Nvidia is America’s AI champion. Its chips command around 90% of the market for AI processors. Nvidia’s technology is so proprietary that China is resorting to corporate espionage to obtain Blackwell technology. The company is delivering better than expected results, yet the stock does not appear to reflect the positive news and strong outlook. Nvidia is expected to generate earnings of around $8.00 per share this year. The stock is therefore trading at roughly 24 to 25 times earnings, a very modest valuation for a company growing at 70%.
The question is why?
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The market is concerned that AI capital spending cannot be sustained at the current pace. Other concerns include competition from companies such as Advanced Micro Devices, or AMD. Finally, traders and investors worry about infrastructure constraints, including the cost of energy for data centers. These concerns are keeping a cap on valuations for now. But if Nvidia continues to grow at a 70% rate, it should prove to be an outstanding long-term investment.
The writer owns shares in Nvidia.
James Rogan is a former U.S. foreign service officer who later worked in law and finance for 30 years. He now writes a daily note on markets, economics, politics, and social matters.