Goldman Sachs: Nvidia's 2027 guidance significantly exceeded expectations; gross margin figures have been finalized; target price raised to $300.

Nvidia delivered a strong quarterly report, and Goldman Sachs believes three catalysts will drive the stock price to continue outperforming the market.

Nvidia reported second-quarter revenue of $96.2 billion, exceeding Wall Street expectations. Management then provided a full-year outlook of 70% revenue growth for calendar year 2027, far surpassing Goldman Sachs' previous estimate of 55% and the market consensus of 44%. Boosted by this, Nvidia's stock price rose approximately 4% in after-hours trading.

According to TrendFocus, Goldman Sachs reiterated its buy rating on Nvidia in its latest research report and raised its 12-month price target from $285 to $300, implying a potential total return of approximately 38% from the current share price. The team led by Goldman Sachs analyst James Schneider believes that the 2027 revenue guidance is in line with the most optimistic buy-side expectations, while a clearer gross margin outlook and management's disclosure of financial commitments to clients will provide stronger support for the stock's valuation.

Quarterly results exceeded expectations across the board, with the data center business leading the way.

Nvidia's second-quarter results exceeded Goldman Sachs and market expectations. Revenue reached $96.2 billion, higher than Goldman Sachs' estimate of $93.1 billion and market expectations of $92.4 billion, representing a year-over-year increase of 106%. Data center revenue reached $89 billion, higher than Goldman Sachs' estimate of $86.5 billion; edge computing revenue reached $7.2 billion, also exceeding Goldman Sachs and market expectations by $6.5 billion.

Profitability also remained robust. Non-GAAP gross margin was 75.0%, in line with Goldman Sachs' forecast and slightly higher than the market expectation of 74.8%; operating margin was 66.5%, slightly exceeding the expectations of both Goldman Sachs and the market; non-GAAP earnings per share were $2.22, higher than Goldman Sachs' estimate of $2.12 and the market expectation of $2.09.

Regarding inventory, inventory rose to $31.6 billion in the second quarter, a 22% increase quarter-over-quarter, with inventory days at 120 days, an increase of 4 days quarter-over-quarter. This was due to the company stockpiling inventory in preparation for the mass production and shipment of Rubin products in the third quarter. Accounts receivable surged 55% quarter-over-quarter to $63.1 billion, with the payment period extending to 60 days, reflecting longer payment terms in some major customer purchase agreements.

The 2027 guidance significantly exceeded expectations, with Rubin's increased trading volume making a substantial contribution.

The most market-impacting information this quarter came from management's outlook for fiscal year 2027 (calendar year 2027). Nvidia expects revenue growth of 70% for that fiscal year, far exceeding Goldman Sachs' previous estimate of 55% and the market consensus expectation of 44%. Management also pointed out that, excluding supply constraints, the company's potential demand growth rate actually exceeds 100%, and supply bottlenecks will continue to constrain actual shipment pace over the next 18 months.

Goldman Sachs estimates that this upward revision of guidance means that Nvidia has increased its previous target of $1 trillion in cumulative revenue for Blackwell, Blackwell Ultra, and Rubin products from 2025 to 2027 by approximately $250 billion.

The increased volume of Rubin products is a key driver behind this upward revision of guidance. Management expects Rubin shipments to contribute approximately 20% of projected revenue in the third quarter. Goldman Sachs believes this demand outlook reflects the accelerating expansion of purchasing demand from emerging customer groups, including AI labs, neoclouds, and sovereign clients, not just hyperscale cloud vendors.

In addition, NVIDIA Vera CPU standalone racks are also experiencing strong demand, partly driven by agent-based AI applications. The company maintains its forecast of $20 billion in CPU-related revenue for calendar year 2026 and expects CPU shipments to grow by more than 100% in 2027.

With a clear outlook for gross margins, Goldman Sachs views this as a "market shakeout" for valuations.

Gross margin trends were one of the most closely watched topics in the market ahead of this quarter. Nvidia gave a non-GAAP gross margin guidance of 74.0% for the third quarter, lower than Goldman Sachs and market expectations of approximately 74.9%, mainly due to rising HBM memory costs and the ramp-up of Rubin products.

Management further indicated that gross margin will bottom out in the fourth quarter, ranging from 71% to 72%, before rebounding and stabilizing at 72% to 73% in fiscal year 2027. This level is lower than the market's previous estimate of 75.1% for fiscal year 2027, but Goldman Sachs believes that the guidance is generally in line with market expectations and may even be higher than some pessimistic expectations.

Goldman Sachs explicitly stated in its research report that, given the market's previous high concerns about gross margins, the implementation of this guidance is expected to eliminate the most critical uncertainty, becoming a "clearing event" for the stock price. The company also stated that it has taken pricing action to partially offset the cost pressure brought about by the increase in HBM memory prices.

Financial commitments are made more transparent, and the commitment to return on capital is reaffirmed.

Nvidia also provided detailed disclosures of its various financial commitments to clients. Management disclosed that the company's total financial commitments amount to $366 billion, covering supply and capacity commitments ($279 billion, primarily for memory), cloud service agreements ($29 billion), data center leases ($25 billion), equity investments ($25 billion), and capital expenditures ($5 billion). In addition, there are additional guarantees of $108.5 billion related to data center land, power, and infrastructure with SoftBank Energy and AI Cloud.

At the same time, Nvidia unveiled a $500 billion funding platform announced on August 10 with financial partners, aimed at supporting infrastructure development for AI labs, enterprises, and AI cloud providers at competitive interest rates. Nvidia can provide up to 25% residual value support for specific projects, evaluated on a project-by-project basis.

Goldman Sachs believes that the above disclosures will help investors better assess the company’s financial risk exposure, while management reiterated that it will return more than 50% of its excess free cash flow to shareholders, even in a downturn scenario.

Valuation and Rating: Target price raised to $300

Based on better-than-expected earnings and an upward revision of guidance, Goldman Sachs has raised its earnings per share (EPS) estimates for Nvidia in 2027 and 2028 to $16.70 and $23.00, respectively, with an average increase of about 9%. This mainly reflects a higher revenue base, partially offset by a downward revision of gross margin.

Goldman Sachs raised its target price from $285 to $300, corresponding to a P/E ratio of 30 (unchanged) multiplied by a normalized EPS estimate of $10.00 (up from the previous $9.50). Goldman Sachs also provided a bullish scenario valuation of $424 ($35x P/E, EPS $12.10) and a bearish scenario valuation of $175 ($25x P/E, EPS $7.00).

Goldman Sachs noted that Nvidia's third-quarter revenue guidance is at a midpoint of $108 billion, lower than Goldman Sachs' forecast of $110.7 billion, but higher than the market expectation of $104.6 billion; non-GAAP earnings per share implied at $2.43, higher than the market expectation of $2.32. Goldman Sachs believes that the above guidance also indicates a generally robust AI infrastructure spending environment, which is a positive signal for its semiconductor coverage stocks such as Broadcom, AMD, Marvell, ARM, and Intel.

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