Investors have come to expect Nvidia (NVDA:NASDAQ) to beat forecasts and up guidance as the AI chip tech leader, but it is things outside of its control which give investors cause for caution.

The outlook on China remains murky, a market where the US company has struggled with export restrictions and pressure from Beijing. This could clear in the future but in the meantime, it is putting a dampener on data centres revenue growth, its largest and most critical division.

This saw the stock limp about 2% lower in after-hours trading directly post the results (27 August). This is hardly anything to tremble about given the share price is less than 5% off record highs, and it may simply have been a case of investors taking some chips off the table ahead of a long weekend in the US for the Labor Day holiday.  

NVIDIA’S CHINA TRAP

Putting some colour on the China issues, Nvidia said data centre revenue, its largest and most critical division, came in at $41.1 billion, missing analysts’ projection of $41.34 billion. Of that, $33.8 billion of Nvidia’s data centre sales were for Nvidia’s GPU chips, down 1% from the first quarter because of $4 billion fewer H20 sales because it sold none of these chips to China in the quarter to end July.

Nvidia expects to generate $54 billion in revenue in its fiscal third quarter, plus or minus 2%, a fraction above the $53.5 billion anticipated by analysts. Any relaxation of export controls could see Nvidia sell between $2 billion and $5 billion of H20 chips this quarter (to end October), although these potential sales are not included in revenue guidance. 

Spun positively, it implies there’s room for upside to Q3 sales if it gets the green light from Washington. ‘If their sales to China are able to surprise next quarter, that could be a huge catalyst moving forward,’ wrote one analyst in a note to clients.

Another big issue discussed by Nvidia chief financial officer Colette Kress, is that the widely reported arrangement Trump struck with Nvidia, under which the government would get a 15% cut of the company’s China revenues, hasn’t been codified in regulations, making that agreement not quite as set in stone as Trump has implied.

GROWTH STILL HUMMING

Nvidia chief executive Jensen Huang’s comments about the top four cloud computing hyperscalers totalling $600 billion in capital expenditures in 2026 came alongside his projection that $3 trillion to $4 trillion could be spent on AI infrastructure by 2030.

But the reality is that growth was bound to moderate from rampant levels of recent years. The company has averaged 64% and over 90% a year in revenue and earnings growth since 2020. A crucial question going forward is, by how much will this ease, especially considering persistent questions over how quickly clients can extract value from AI investments.

Chief executive Jensen Huang says China alone could be a $50 billion revenue opportunity for Nvidia this year, with the potential for 50% annual growth if it were able to sell its technology unhindered by regulations, but those rules mean it cannot fully exploit this opportunity.

For now, not including any H20 sales into forward earnings guidance is a sensible thing to do, opening the potential for upside surprises while allowing lower expectations to get baked into the current valuation.

Where does this leave Nvidia’s growth expectations? According to Koyfin’s consensus data, the market is forecasting EPS of $1.24 on $54.6 billion revenue in the fiscal third quarter to end October, and $1.41 on $61.1 billion in Q4, implying 50% to 55% growth. That would be impressive for most companies, but it is unheard of for a multi-trillion dollar market cap business.

For the full year to January 2026, the consensus is pitched at $4.48 EPS on roughly $207 billion of revenue, both increased since June and implying new records both. Koyfin consensus projects sales growth to moderate to approximately 32% and 18% in fiscal 2027 and 2028, lowish bars that look likely to be gradually raised as the months tick by.

So where does this leave investors? We all know the company as the chip designer which has captured early leadership in the emerging AI race. Over five years, Nvidia stock has amassed 1,280% gains from about $12, or 67% a year on an annualised basis. That’s nearly five times the annualised return of the Nasdaq Composite (14.4%, according to Morningstar data).

LOOK THROUGH THE VALUATION

The obvious conclusion is Nvidia shares must be on a scorching valuation after such phenomenal success, but that’s not the case. Stockopedia calculates Nvidia’s 12-month forward PE (price to earnings) multiple at 31.3 times, about on par with Microsoft (MSFT:NASDAQ), another perceived AI winner, and less expensive than other AI hot stocks like Broadcom (AVGO:NASDAQ) and Palantir (PLTR:NASDAQ) (see table).

Put it another way, investors have had only a handful of opportunities since 2020 to buy the stock below its current valuation. Nvidia’s average three-year PE is under 30, a metric that many growth stock fund managers believe is more instructive than a single year or 12-month PE. It is also worth noting that Nvidia’s current PEG (price to earnings growth) ratio sits at an attractive one times.

This valuation is being supported by a huge $60 billion share buyback programme, announced alongside its latest earnings results. Rather than a sign of growth fatigue, as some market commentators have suggested, this looks to us like sensible use of its $25 billion-plus quarterly free cash flow and near-$57 billion cash reserves to counter stock dilution from employee options and underpin shareholder value over the medium term while its hands are tied in China.

In the meantime, most Wall Street analysts agree that Nvidia has more room to run both operationally and in share price terms. Koyfin’s consensus price target over the next 12-months sits above $205, versus $174.18 now (1 September), while 89% of the 65 analysts covering Nvidia are still have ‘buy’ recommendations on the stock.  

Given the popularity of index ETFs, most investors will own some exposure to Nvidia – it represents 13.9% of the Nasdaq 100 and 7.3% of the S&P 500. For those that own Nvidia shares directly, hopefully this feature will help crystallise your thoughts about what you should do next.

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