Key takeaways:
- Demand remains strong despite NVIDIA’s increasing scale. Management’s outlook indicated that growth could remain elevated, with supply constraints rather than demand still being the principal near-term limitation for further growth.
- Greater disclosure was addressed to calm financing concerns, with more detail on its financial commitments to AI infrastructure projects and neocloud providers.
- Expanding free cash flow could allow NVIDIA to support supply, invest in its ecosystem and return more capital to shareholders. As active investors we continue to monitor margins, execution and the durability of AI spending.
We recognise the scale of this support, and we know some will call this circular financing. We see it differently.
NVIDIA CEO Jensen Huang
NVIDIA finally bucked the trend of the past year with another earnings beat and raise finally rewarded with a positive share price reaction in after-hours trading. Management’s efforts to assuage some of the wider debates on the stock including the announcement of a surprise supply constrained 70% growth guidance for next year, which was streets ahead of consensus 45% growth.1 This looked to calm concerns around AI capex sustainability, the law of big numbers challenge to sustain very high growth rates, and competitive concerns. Significant disclosures on the company’s ecosystem financial commitments seemed to help push back on circular financing concerns. Meanwhile, management ‘grasped the nettle’ on gross margin concerns by acknowledging margins have peaked, but with memory long-term agreements (LTAs) now locked in, securing future supply and improve visibility over pricing and margins, and pricing power being exercised on their products into next year, a still respectable +70% gross margin is possible. Free cash flow (FCF) generation potentially ramping to over US$300 billion in 2027 will be used to not only secure supply and fund the broader AI ecosystem, but over half is being returned to shareholders via buybacks and a 25x dividend.
Main highlights from NVIDIA’s earnings call:
1. Significant growth upgrade: The consistent ‘beat & raise ‘numbers from NVIDIA have typically been met with investor apathy despite growth accelerating for the fifth straight quarter to over 100% again. But investors were certainly woken from their slumber by the CFO guiding 70% growth next year. For context, the suggestion that revenue growth could approach +70% next year, well above market consensus, implies adding around US$280 billion in revenues. That guidance is also supply constrained with NVIDIA saying demand is 100% growth. The upshot of such a major growth upgrade is earnings per share (EPS) forecasts for NVIDIA need to go up another 20% overnight, and EPS forecasts for next year are now up 75% since the start of the year.
2. Gross margin bear thesis put to bed: Recent concerns on competitive pressures and memory inflation have driven a bear thesis on NVIDIA margins. While NVIDIA effectively acknowledged margins have peaked. Signed memory LTAs (driving up their supply commitments from US$119 billion to US$279 billion in only three months) are locking in pricing as well as adjusting product pricing into 2027. This supports the guidance of still strong +70% gross margins next year.
3. Updated circular financing disclosures: NVIDIA’s blogs on the new US$500 billion of third-party financing and the PORTS-Pike OpenAI project financing were vague on detail; investors welcomed the enhanced disclosures as part of these results NVIDIA’s financial commitment for PORTS-Pike is capped at US$105 billion, only a portion of each project, is phased, and kicks in from later in 2028. Additionally, there was more clarity on US$56 billion of commitments to the neoclouds where NVIDIA potentially earns a revenue share as part of their financial commitment. Jensen justified this financial intervention due to the nascent and immature nature of the AI frontier labs and neoclouds from an infrastructure and investment grade financing standpoint. NVIDIA can utilise its significantly strong free cash flow (FCF) generation to accelerate the AI flywheel. AI frontier labs are expected to be only 25% of NVIDIA’s revenues next year.
4. Shareholder returns are rising: After the 25x dividend increase and US$80 billion buyback last quarter, the CFO talked about an ongoing and rising commitment to return over 50% of FCF. Given FCF projections of US$750 billion in 2027 and 2028, NVIDIA looks well positioned to buy back a significant about of stock as well as increase the dividend meaningfully from here.
5. Rubin ramp on track: Utilising the same rack architecture as its Blackwell predecessor, Rubin has a much smoother ramp, with no chip re-spin (redesign) needed, reducing execution risk. Rubin went into production earlier this month and is expected to constitute 20% of data centre revenues this quarter. There was no update on Rubin Ultra specifications launching later next year.
6. No China revenues contemplated: Despite recent reports of Beijing allowing some H200 imports and plans to ship Groq LPUs to China, NVIDIA clarified China was less than 1% of their data centre revenues last quarter. No revenues are contemplated in current guidance.
Growth, scale, and adoption continue to underpin the AI opportunity
The debate around NVIDIA has centred on whether such exceptional growth for AI and the company can be sustained. The earnings addressed most of the market’s key concerns with a surprise significant upgrade to 2027 revenue growth expectations, provided greater disclosure to soothe circular financing concerns, as well as directly addressed concerns about the impact of strong AI demand causing a surge in memory prices, impacting NVIDIA’s margins. We remain positive about the outlook for the technology sector as investment in AI infrastructure continues to scale, platforms emerge and applications develop.
IMPORTANT INFORMATION
References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
There is no guarantee that past trends will continue, or forecasts will be realised.
All references to NVIDIA-related information sourced from NVIDIA FQ2 27 financial results and earnings call transcript; 26 August 2026.
1 CNBC.com; Nvidia earnings takeaways: Huang forecasts 70% fiscal 2028 revenue growth, far above estimates; 27 August 2026.
AI flywheel: A self-reinforcing cycle in which greater adoption of artificial intelligence generates more data and investment, leading to better AI models, wider usage and further growth in demand for AI-related products and services.
Blackwell: NVIDIA’s Blackwell graphics processing units (GPUs) are designed for generative AI and accelerated computing with significantly better energy consumption at lower cost to complete tasks for AI processing.
Capital expenditure (capex): Money a business spends on major, long-term assets such as property and equipment (tangible assets) or technology, software, trademarks, patents etc. (intangible assets) to facilitate new projects or investments that support business growth and expansion.
Circular financing: An arrangement in which a supplier provides funding or financial support to a customer that may then use some of that funding to purchase the supplier’s products. Investors may examine these arrangements to assess whether reported demand is independently financed.
Consensus estimate: The average or median forecast made by analysts covering a company, such as an estimate for revenue or earnings.
Dividend: The income received on an investment.
Free cash flow: Cash that a company generates after allowing for day-to-day running expenses and capital expenditure. It can then use the cash to make purchases, pay dividends or reduce debt.
Gross margin: Revenue remaining after deducting the direct cost of producing goods or services, expressed as a percentage of revenue.
Hyperscalers: Companies that provide infrastructure for cloud, networking, and internet services at scale. Examples include Google, Microsoft, Facebook, Alibaba, and Amazon Web Services (AWS).
Long-Term Agreement (LTA): A multi-year contract between a buyer and supplier that secures future supply volumes, and sometimes pricing, for critical products or components. Companies often use LTAs to reduce supply-chain risks and improve planning certainty.
LPU (Language Processing Unit): LPU is a proprietary chip architecture developed by Groq (owned by NVIDIA). LPUs are a crucial part of LPU Inference Engines, which are a new type of end-to-end processing unit system for the applications and workloads that are most commonly associated with natural language processing or AI language applications.
Neoclouds: AI-first cloud providers offering specialised GPU infrastructure at a lower cost than hyperscalers, making AI workloads more accessible.
PORTS-Pike Project: OpenAI announced its participation in the Pike County, Ohio-based project in August 2026. The project is designed to meet projected long-term needs, frontier AI training, and product demand. The site will exclusively host NVIDIA AI compute infrastructure.
Rubin: The successor to Blackwell, NVIDIA’s Vera Rubin chip platform is built for the age of agentic AI and reasoning, engineered to master multi-step problem-solving and massive long-context workflows at scale.
Share buyback: Where a company buys back their own shares from the market, thereby reducing the number of shares in circulation, with a consequent increase in the value of each remaining share. It increases the stake that existing shareholders have in the company, including the amount due from any future dividend payments. It typically signals the company’s optimism about the future and a possible undervaluation of the company’s equity.
Valuation: The process of determining the fair value of an asset, investment, or firm. Among others, future earnings and other company attributes are used to arrive at a valuation.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
There is no guarantee that past trends will continue, or forecasts will be realised.
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