Wolfe Research Analyzes NVIDIA: “We Believe the Pain Trade Points to Higher Values”

This article is not intended as investment advice. The author does not hold any positions in the stocks mentioned herein.

NVIDIA’s Q1 Fiscal 2026 Earnings Report: A Mixed Bag

Following the release of NVIDIA’s earnings for Q1 of fiscal year 2026, market analysts are arriving at a nuanced interpretation of the results. The prevailing sentiment highlights that while NVIDIA effectively assuaged many investor apprehensions, the exhilaration surrounding the report is tempered by inconsistencies within the earnings data. Various analysts approached the consensus estimates differently, particularly regarding the impact of H20-related challenges. This divergence made it difficult to discern a clear “beat”or “miss”from the report.

Enough? – Nvidia $NVDA Earnings Recap

Ultimately this report is a big mess because of mis-matched analyst estimates with the China inventory write-off. Tough to read much into the beats and misses below as a result. No blow ups but not overly bullish either.https://t.co/yFFf61ExcH pic.twitter.com/vpPIa4PAnL

— Consensus Media (@ConsensusGurus) May 28, 2025

Financial Highlights: A Closer Look

In the first quarter, NVIDIA announced total revenues of $44.06 billion, surpassing the consensus estimate of $43.29 billion. However, drilling deeper reveals that revenue from AI-critical data centers reached $39.1 billion, falling slightly below analysts’ expectations of $39.22 billion.

Notably, NVIDIA faced significant challenges following the Trump administration’s imposition of licensing requirements affecting its H20 GPU sales to China. This resulted in $4.5 billion in inventory write-offs and purchase commitments, severely affecting the company’s gross margin, which fell to 61 percent. When adjusted for one-off items, the gross margin stood at 71.3 percent, down from 78.9 percent in the same quarter last year.

Future Outlook and Guidance

Looking ahead, NVIDIA projects revenues of approximately $45 billion for Q2 2026, with a margin of plus or minus 2 percent. This forecast is conservative compared to the consensus estimate of $45.5 billion, partly accounting for roughly $8 billion in expected losses related to H20 sales.

Analyst Insights: Wolfe Research Perspective

Notably, Wolfe Research has provided a thought-provoking analysis suggesting that the “pain trade”for NVIDIA is likely to rise. Analyst Chris Caso emphasizes that the recent earnings report has effectively addressed numerous investor worries—ranging from production capacities to China’s market dynamics and the broader AI industry trends.

According to Caso, the current shipment rates of NVIDIA’s products are outpacing revenue expectations, indicating a potential convergence in the near future. He posits that NVIDIA was likely under-owned prior to the earnings report, which suggests a bullish tendency as the market shifts its outlook:

“Net, we think the consensus view had been to own this stock for 2H and CY26, but the concerns heading into the report caused some to wait out this report. With the concerns now addressed, the stock up and a bullish outlook for 2H, we think the pain trade for NVDA is higher.”

For those looking to track NVIDIA’s trajectory amid these developments, staying updated on market analyses is crucial.

Source & Images