Nvidia FQ4 25 – On the Nose

Not too little, not too much, just right.

• Nvidia reported results that confirmed that the AI spending spree remains on track, but this growth is now captured in the estimates meaning that surprises will be hard to come by.
• The valuation of Nvidia remains undemanding relative to the growth that it is still experiencing meaning that while the really big gains are over, this still represents growth at a reasonable price.
• FQ4 25 revenue / EPS were $39.3bn / $0.89 up 12% QoQ and 78% YoY which was slightly ahead of estimates of $38.1bn / $0.85 but below the top of the estimates range.
• Guidance for the FQ1 26 was also comfortably within the range with revenues of $42.1bn – $43.4bn with gross margins expected to be 70.6% – 71.0%.
• This represents slowing but still very good growth, but the key take-home of these numbers is the failure to guide above the top of the estimated range.
• For companies on very high multiples of earnings, this would represent a significant problem as one would expect to see a collapse in the share price of 25% – 30%.
• However, Nvidia barely moved ending the after-hours trading session ending just 1.5% below where it closed just before the report.
• This is precisely why Nvidia remains the safest direct investment in the AI boom, and it is the company’s ability to feed the growth straight to the bottom line that has kept the PER ratio at reasonable levels.
• This, in turn, means that the rating does not need to correct when the company reports earnings in line with expectations which is precisely what we see here.
• At the same time, I think that the company’s current high visibility on its earnings due to ongoing strong demand means that fiscal 2026 is going to be one of good, but not surprising growth.
• Nvidia took the opportunity to address the DeepSeek question with greater efficiency being offset by higher demand and it pointed out the reasoning models which are currently all the rage consume far more compute power than the predecessors.
• This makes complete sense because these models work by “reasoning” for longer or by computing several answers with a separate algorithm and then choosing the best answer.
• This is what Nvidia means by a new level of model scaling and while I would argue that parameter and data scaling are close to the limits of what they can deliver, inference time has further to go.
• I suspect that this too, will hit a limit of what it can deliver but at the moment, many players will be looking at how they can improve performance through increasing inference.
• Furthermore, RFM Research has concluded that DeepSeek may not be that much more efficient than OpenAI when it comes to inferencing meaning that fears of an immediate collapse in demand are probably overstated.
• This is a tailwind for Nvidia and the data centre capex plans for FY2026 have not been cut meaning that I do not think that DeepSeek is about to clobber demand for Nvidia’s data centre chips.
• Hence, expectations for FY2026 look to be about right which combined with the good visibility that I think the company has means that there will be few surprises this year.
• The net result is that the valuation of the company should remain steady meaning that share price appreciation should be roughly in line with profit growth.
• This means that the share price should do reasonably well this year, but the days of blow-outs and huge price appreciation are clearly over.
• This is why I think that Nvidia remains a pretty safe direct AI play, but I continue to prefer the adjacencies of inference at the edge and nuclear power both of which look like they now have further to travel than Nvidia where the story is well understood and priced in.