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In-Depth Equity Analysis: NVIDIA (NVDA)
NVIDIA (NVDA) FY26 Q3 Earnings Review
1 Executive Summary
"AI infrastructure construction is shifting from simple chip procurement to system-level reinvention."
NVIDIA's FY26 Q3 results demonstrate strong resilience amidst market concerns regarding a potential peak in AI Capital Expenditures (Capex) and slowing demand for Hopper chips. The data indicates that AI infrastructure development remains in an expansionary phase and has not shown significant signs of cyclical decline.
Based on this quarter's financial report, our core analytical logic is as follows:
Revenue Re-acceleration: Year-over-year revenue growth rebounded to over 60% from the previous quarter's decelerating trend, demonstrating strong momentum in core businesses.
Robust Blackwell Demand: Management emphasized during the earnings call that demand for Blackwell is at an extremely high level (described as "Insane") and production capacity is fully utilized. Based on backlog and long-term supply agreements, revenue visibility for the coming quarters has significantly improved.
Short-term Margin Volatility Does Not Alter Long-term Trend: While gross margins fluctuated slightly this quarter due to initial production costs for Blackwell, company guidance suggests margins are expected to return to the historical high range of 75% as yields improve, reflecting effective cost structure management.
Transformation of Computing Paradigm: NVIDIA is consolidating its market position through three major platform transformations: Accelerated Computing, Generative AI, and Agentic AI. As inference demand is unleashed, the rigid demand for computing resources is strengthening.
Conclusion: NVIDIA is evolving from a chip designer into a full-stack AI infrastructure provider. Current performance validates that the AI industry remains in a capital-intensive phase centered on computing power.
2. Financial Deep Dive: Analyzing Growth Drivers
Revenue Performance: Beating Expectations with Re-acceleration
Total Revenue: FY26 Q3 revenue reached $57 billion, a 62% year-over-year increase, surpassing the consensus estimate of $54 billion. Notably, the growth rate accelerated compared to the previous quarter.
Data Center (Core): Recorded $51.2 billion in revenue, up 66% year-over-year.
Key Insight: The "Osborne Effect" feared by the market (where customers delay purchasing current Hopper chips to wait for the new Blackwell generation) did not significantly materialize. Demand for H100 and H200 remains robust, indicating an urgent and immediate need for computing power among customers.
Guidance: Smooth Transition Between Product Generations
Q4 Guidance: The company expects Q4 revenue to reach $65 billion (+/- 2%), implying a year-over-year growth rate maintained at approximately 65%.
Interpretation: This guidance suggests that Blackwell is expected to contribute significant revenue in Q4, while the Hopper series retains vitality. The transition between new and legacy product lines appears seamless, forming a "dual-engine" growth dynamic.
Profitability: Normal Fluctuations During Yield Ramp-up
Gross Margin Analysis: Q3 gross margin was 73.6%, slightly down from 75.1% in the previous quarter.
Reason: This is primarily attributed to the complex CoWoS-L packaging technology used in the Blackwell architecture, which led to temporary cost increases during the initial yield ramp-up phase.
Future Outlook: CFO Colette Kress indicated that as Blackwell yields stabilize, gross margins are expected to gradually return to the 75% range in Q4 and the next fiscal year. This reflects the stability of the company's supply chain management and pricing strategy.
3. The Blackwell Era: Supply and Demand Analysis
As the Hopper architecture cycle matures, the Blackwell architecture will become the core focus for NVIDIA in the coming quarters.
Demand Side: Supply Shortage Remains the Main Theme
During the earnings call, CEO Jensen Huang used the term "Insane" to describe market demand for Blackwell.
Order Status: Management stated that Blackwell capacity for the next 12 months is essentially fully booked. This indicates that competition for computing reserves among major Cloud Service Providers (CSPs) and enterprise customers remains intense.
Customer Dynamics: Key customers such as Microsoft, Oracle, and OpenAI continue to increase investment, aiming to lower unit costs for model training and inference through higher-performance hardware.
Revenue Visibility: Backlog Supports Future Performance
The CFO mentioned during the meeting that, based on the current backlog and pre-order intentions for the next-generation Rubin platform, NVIDIA possesses extremely high potential revenue visibility (referencing long-term opportunities scaling around $500 billion).
Deep Logic: This figure reflects the extension of NVIDIA's product line—encompassing not just chips, but also server racks (NVL72), network switches (Spectrum-X), and software services. The company is gradually increasing its share of the data center value chain.
Product Strategy: Flexible Response to Market Segmentation
Capacity Allocation: Due to initial supply constraints on Blackwell, demand has effectively spilled over to the H200 as a mature, high-performance alternative.
Product Matrix: The GB200 targets high-end training demands, while future product lines like the GB300 are expected to cover the broader inference market. This product mix helps smooth out volatility caused by technological iterations.
Section Summary: In the early stages of the Blackwell cycle, the pace of supply capacity improvement will be the critical variable determining the rhythm of financial performance realization.
4. Customer & Market Dynamics: Trends in Diversification
While Cloud Service Providers (CSPs) remain the primary force, NVIDIA's customer base is expanding into broader sectors, which helps mitigate the risk of reliance on a single client group.
CSPs (Cloud Service Providers): The Capex "Arms Race"
Revenue Share: Major CSPs (such as Microsoft Azure, AWS, Google Cloud, and Meta) contributed approximately 50% of Data Center revenue.
Trend Analysis: Despite market concerns regarding the Return on Investment (ROI) of AI, major CSPs have indicated in recent earnings reports that they will continue to increase capital expenditures. This "defensive investment" mentality—where "the risk of under-investing is far greater than the risk of over-investing"—provides near-term support for NVIDIA's performance.
Sovereign AI: A New Growth Pillar
Definition: Refers to nations building sovereign, controllable computing infrastructure to protect data sovereignty and train indigenous language models.
Performance Contribution: Management revealed that revenue related to Sovereign AI is expected to reach the multi-billion dollar scale this year. Nations like Japan, India, and France are actively building national-level supercomputing centers.
Strategic Significance: This type of demand is typically less price-sensitive and possesses long-cycle attributes, effectively smoothing out commercial business cycle fluctuations.
Enterprise: The Rise of Agentic AI
Adoption: Through deep partnerships with enterprise service giants like Accenture and ServiceNow, enterprise AI is moving from "Proof of Concept (POC)" to "scaled deployment."
Tech Driver: "Agentic AI," capable of autonomously executing complex workflows, is pushing inference demand to new heights. NVIDIA estimates that the proportion of inference business within Data Center revenue is continuously rising.
5. Risks & Challenges: Supply Bottlenecks and Geopolitics
Beneath the optimistic fundamentals, we must objectively examine potential limiting factors and downside risks.
Supply Chain Constraints: CoWoS Capacity Remains a Bottleneck
Status: Although TSMC is actively expanding capacity, advanced packaging (CoWoS-L) capacity remains tight. The complexity of the Blackwell chip (containing two GPU dies and eight HBM3e memory stacks) increases production difficulty exponentially.
Impact: Supply constraints mean that sequential revenue growth may be limited by production capacity rather than a lack of demand. This requires investors to closely monitor the progress of supply chain yield ramp-ups.
Geopolitics: Impact of the China Market
Data: The proportion of Data Center revenue from the China market has dropped to a low single-digit percentage (historically as high as 20%-25%).
Outlook: Although NVIDIA has introduced compliant chips (such as the H20), due to performance restrictions and challenges from domestic competitors (such as Huawei Ascend), business in the China region is unlikely to recover to historical highs in the short term. This has become a structural revenue gap.
Technical Competition: The Long-term Threat of ASICs
Internal Competition: Major CSP customers (Google, Amazon, Microsoft) are all developing in-house custom chips (ASICs) to reduce costs. While NVIDIA GPUs currently maintain dominance in versatility and ecosystem (CUDA), in the long run, specific workloads may shift to ASICs, potentially eroding some market share.
6. Strategic Outlook: From "Compute" to "AI Factories"
NVIDIA is redefining its business model, moving beyond merely selling chips to selling "AI Factories."
Networking: The Overlooked Growth Engine
Spectrum-X Ethernet: As AI clusters scale up, the importance of network connectivity becomes increasingly prominent. NVIDIA's Spectrum-X Ethernet platform saw significant year-over-year revenue growth this quarter and is expected to become a multi-billion dollar product line within a year.
Logic: This is a purely incremental market, aiming to solve congestion issues inherent in traditional Ethernet under AI workloads.
Physical AI: Robotics and Autonomous Driving
The Next Wave: Jensen Huang has repeatedly emphasized that following Generative AI, the next wave is "Physical AI," namely robotics and autonomous driving.
Layout: Through the Jetson platform, the Isaac robotics simulation platform, and the Automotive business, NVIDIA is positioning itself for the intelligence of the physical economy. Although the Automotive revenue share is currently small, year-over-year growth is robust, representing a potential future growth point.
7. Conclusion
"Short-term focus on supply delivery; Long-term focus on application adoption."
In summary, NVIDIA's FY26 Q3 earnings report showcases a company at the absolute core of the industry, with growth momentum shifting from simple chip sales to system-level solutions. The commencement of the Blackwell cycle provides clear performance visibility for the next 1-2 years.
While supply chain bottlenecks and geopolitical risks persist, the explosion of the inference market, the rise of Sovereign AI, and the deployment of enterprise applications suggest that the global trend of transforming computing infrastructure toward accelerated computing remains unchanged. For the market, the focus should gradually shift from pure hardware shipment volumes to the commercialization progress of end-user applications, as this will determine the long-term sustainability of computing demand.
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