As AI technology explodes, Nvidia's guidance for next year is conservative!

Nvidia delivered a quarterly report that exceeded expectations across the board and provided its first formal revenue framework for the next fiscal year—around 70% year-over-year growth. However, JPMorgan Chase believes this guidance may underestimate the true explosive power of the proxy AI wave and sovereign demand.

Nvidia's revenue for the second fiscal quarter (ending July) reached $96.1 billion, a year-over-year increase of 106%, marking the fourth consecutive quarter of accelerated year-over-year growth. Meanwhile, the company set its third fiscal quarter revenue guidance at a midpoint of $108 billion, exceeding market expectations by approximately $3.5 billion. More notably, management provided its first formal revenue framework for FY28 (ending January 2026), projecting a year-over-year increase of approximately 70%—but explicitly characterizing this as a conservative estimate under "supply constraints," noting that in a scenario without supply constraints, the actual pace of demand would be significantly higher.

According to a report by Zhuifeng Trading Platform, JPMorgan analyst Harlan Sur pointed out that considering the accelerated adoption of proxy AI applications, the continued mobilization of global sovereign computing power demand, and the additional supply flexibility continuously released by Nvidia's supply chain partners, the FY28 framework "is likely to remain conservative." JPMorgan raised its target price for Nvidia from $280 to $320 (corresponding to December 2027) and maintained its "overweight" rating.

Quarterly Results: Data Centers Accelerate Across the Board, Sovereign AI Becomes a Highlight

Nvidia's revenue for F2Q27 (July quarter) was $96.1 billion, exceeding market expectations by approximately $4.1 billion. Data center revenue reached $89 billion, a year-over-year increase of 117%, also exceeding market expectations of $87.3 billion.

In terms of data center internal structure, hyperscale cloud providers saw revenue of $48.7 billion, a 13% increase quarter-over-quarter, driven by continued high demand for Blackwell Ultra. ACIE (AI Cloud, Enterprise, and International) revenue reached $40.3 billion, a 25% increase quarter-over-quarter and a 138% increase year-over-year, primarily driven by demand from AI-native cloud, enterprise, and sovereign clients. Notably, sovereign AI revenue (mainly through emerging regional cloud service providers) increased by 35% quarter-over-quarter and more than doubled year-over-year, pushing international revenue's share to 38%.

In addition, network revenue increased by 18% sequentially, and Spectrum X Ethernet product revenue increased by 2.6 times year-over-year. Edge computing revenue reached $7.2 billion, a 13% sequential increase. Shareholder returns for the quarter were record high at $26 billion (including $20 billion in share buybacks and $6 billion in dividends), and the year-to-date free cash flow return has reached 60%, exceeding the previous target of "over 50%".

FY28 Framework: Proxy Inference Drives TAM Expansion, Supply Remains the Main Constraint

Management's FY28 revenue framework—approximately 70% year-over-year growth, corresponding to JPMorgan's estimate of around $695 billion—attributes the growth primarily to the expansion of the addressable market driven by agency inference. Key figures supporting this framework include: a backlog of over $2 trillion in hyperscale cloud orders; revenue per gigawatt of computing power for the Vera Rubin platform expected to exceed $40 billion, significantly higher than Grace Blackwell's $25 billion and Hopper's $18 billion; and CPU revenue projected to more than double in FY28 as Vera Rubin ramps up production.

Production and shipments of Vera Rubin began this month in August, with purchase orders from all major hyperscale cloud vendors, AI cloud providers, and system OEMs already in place. Management characterized it as "the fastest product ramp-up in Nvidia's history," noting that the order tail of the Blackwell product line is "narrowing rapidly." Vera Rubin is expected to contribute approximately 20% of data center revenue in the third fiscal quarter, while Hyperscale anticipates a renewed acceleration in the fourth fiscal quarter and FY28 as Vera Rubin supply expands.

Management also explicitly described the FY28 framework as guidance for a supply-constrained scenario, stating that actual demand would be substantially higher in an unconstrained environment. JPMorgan believes that the rapid adoption of proxy AI and the global mobilization of sovereign demands will make this framework somewhat conservative.

Gross margin trajectory has been revised downwards, but HBM's price lock-in commitment provides downside protection.

One of the main discrepancies between this earnings report and expectations lies in the adjustment of the gross margin guidance. The gross margin guidance for the third fiscal quarter is 74.0%, which is still slightly higher than the market expectation of about 73.5%, but it is down about 100 basis points compared to the previous quarter, due to memory cost inflation exceeding previous expectations.

Management further outlined a longer-term gross margin trajectory: the gross margin is expected to bottom out in the fourth fiscal quarter (F4Q27) at 71%-72%, and then gradually recover as price increases implemented from the first fiscal quarter of FY28 take effect. The gross margin range for the full fiscal year of FY28 is expected to be 72%-73%.

For investors, a key risk hedging signal is that Nvidia has secured supply commitments and known pricing for most of its HBM demand in FY28, with related memory contracts covering a three-year forward period. This constitutes what JPMorgan Chase calls a "bottoming out" for gross margins, mitigating to some extent the uncertainty of near- to medium-term profit margins. Of Nvidia's approximately $350 billion in total supply commitments, the majority are related to memory (primarily HBM).

Financing Structure Expansion: Revenue Sharing and a $500 Billion Private Equity Platform Create New Inflows

Nvidia has significantly expanded its infrastructure financing structure to support forward demand, which JPMorgan Chase considers one of the key highlights of this quarter.

Specifically, there are several aspects: First, Nvidia's PORTS-Pike guarantee supports the construction of OpenAI's Ohio data center, involving approximately 4.25 gigawatts of IT load, with an additional 3.8 gigawatts of priority purchase rights. It is estimated that each generation of products can generate approximately $15 billion to $20 billion in revenue, covering multiple 20-year upgrade cycles.

Secondly, Nvidia has signed revenue-sharing agreements with some emerging cloud service providers. While providing a basic pricing guarantee, Nvidia receives 50% of the difference between the actual market rental price and the basic pricing. JPMorgan Chase describes this as an "additional recurring revenue stream" superimposed on hardware sales. With the implementation of the current 5 to 20 managed revenue-sharing projects, it is expected to contribute billions of dollars in incremental revenue in the future.

Third, NVIDIA, in partnership with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR, has established a $500 billion private equity financing platform to support the infrastructure development of its cutting-edge AI labs. NVIDIA's remaining credit exposure in each financing round is capped at approximately 25%, and there have been no actual capital commitments to date. Furthermore, NVIDIA has invested nearly $50 billion in its cutting-edge AI labs to date, and OpenAI has committed to deploying NVIDIA's AI infrastructure on a large scale (approximately 12 gigawatts) by 2030. NVIDIA's AI lab customers, supported by its balance sheet, are expected to contribute approximately one-quarter of its revenue in FY28.

In response to market concerns about "revolving financing," management characterized the arrangement as being based on demand intensity, ecosystem returns, and the investment-grade credit ratings of the underlying computing power purchasers. JPMorgan Chase indicated that it generally agrees with this framework but expects related discussions to continue.

JPMorgan raised its price target for Nvidia to $320, based on a price-to-earnings ratio of approximately 20 (corresponding to a projected CY26 earnings per share of $15.87). Based on the current share price of approximately $209, the projected FY28 price-to-earnings ratio is approximately 13, and the projected FY28 EV/EBITDA ratio is approximately 10.

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The above content is from Zhuifeng Trading Platform .

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