Nvidia's Q1 FY26 Earnings Lead to Short-Term Weakness Despite Long-Term Prospects

Nvidia's Q1 FY2026 earnings resulted in a 3% stock decline. Despite this, the company is positioned to outperform expectations due to its strong position in the gaming and AI markets. Analysts attribute the short-term weakness to the earnings release, but Nvidia's long-term prospects remain positive.

Nvidia Corporation (NVDA) reported its Q1 FY2026 earnings on July 2, 2025, with a 3% decline in stock price following the announcement. Despite this short-term setback, the company remains well-positioned to outperform expectations due to its strong market presence in gaming and artificial intelligence (AI).

NVIDIA's earnings surprise track record is impressive, with only three misses in the past five years. However, the company missed its earnings estimate by 4.7% in the first quarter of FY2026, marking its first miss since the AI revolution began in spring 2023 [1]. Analysts, despite this miss, remain bullish on the company, with three estimates revised higher in the past week, indicating a positive outlook [1].

The company's revenue jumped 56% year on year, driven by strong demand for its AI chips. However, despite these impressive results, shares slipped more than 2% after the earnings report, reflecting investor caution about whether the AI growth is fully priced into the stock [2]. This cautious reaction is a sign of the maturing market view of Nvidia's growth trajectory rather than disappointment with its performance [2].

Nvidia's forward P/E ratio is 41.6, which is in line with its historical valuation, but its price-to-sales (P/S) ratio of 29.2 indicates that it is expensive on a valuation basis. However, the company's PEG ratio of 1.47 suggests that it is attractive, given that a PEG ratio under 1.0 usually indicates value [1].

Looking ahead, Nvidia's data center division continues to be a growth engine, with the latest Blackwell architecture, including the new Blackwell Ultra line, showing strong sequential growth. The company expects current-quarter revenue of around $54bn, plus or minus 2%, in line with analyst expectations [2].

Despite the upbeat figures, geopolitical tensions, particularly around China, continue to cast a shadow over the company's performance. Nvidia confirmed that it generated no revenue in China during the quarter due to tightened US export controls on advanced chips, although it did sell $650 million worth of its China-specific H20 semiconductors to a customer outside the country [2].

In conclusion, while Nvidia's Q1 FY2026 earnings resulted in a 3% stock decline, the company's long-term prospects remain positive. Its strong position in the gaming and AI markets, combined with continued data center growth, positions Nvidia well for future success. However, the company must navigate geopolitical risks and maintain its lofty profit margins to sustain its momentum.

References:
[1] https://www.nasdaq.com/articles/check-out-nvidias-awesome-earnings-chart
[2] https://cryptorank.io/news/feed/29995-nvidia-revenue-jumps-56-but-shares-slip-2-as-ai-momentum-steadies