Exceeded expectations! Nvidia's Q4 revenue increased by 73%, Q1 guidance

Li Dan

Nvidia’s Q4 total revenue and data center revenue both hit record highs. Boosted by the ramp-up of Blackwell, gross margin rose above 75%, reaching an 18-month high. Data center revenue beat expectations, surging 75% year-on-year, with networking revenue jumping more than 260%. Gaming revenue missed estimates, falling 13% quarter-on-quarter due to channel inventory pressures. Nvidia expects supply constraints to become a headwind for the business starting in Q1 and beyond.

The midpoint of Q1 revenue guidance is 4% above the most optimistic buy-side forecasts, rising nearly 77% year-on-year, excluding China data center compute revenue. Stock-based compensation will be included in non-GAAP measures starting Q1.

Jensen Huang said compute demand is surging and adoption of AI agents is soaring, while the current space data center economy remains “barren.” Nvidia’s shares rose more than 4% in post-market trading before turning lower to drop more than 1%.

Amid a flurry of recent product launches from Anthropic and Citrini’s “doom report” that stoked investor fears, the AI boom passed a major test. Nvidia delivered blowout results, proving that AI-driven demand remains robust.

On Wednesday, February 25, Eastern Time, Nvidia reported financial results for the fourth quarter of fiscal 2026, ending January 31, 2026. Revenue reached a record $68.1 billion, surging roughly 70% year-on-year. Its core data center business, which contributes over 90% of total revenue, also set a quarterly record, both exceeding analyst estimates by more than 3%.

Nvidia’s profitability in Q4 was also strong. On a non-GAAP basis, adjusted earnings per share (EPS) jumped more than 80% year-on-year, beating consensus by about 5.9%. Gross margin climbed to 75.2%, exceeding expectations and hitting an 18-month high.

Even more encouraging to investors, Nvidia’s guidance for the first quarter of fiscal 2027 was also stronger than expected. Revenue is set to hit another record. The midpoint of the guidance range is 7.1% above the consensus forecast and 4% above the most optimistic buy-side view, with year-on-year growth accelerating to nearly 77% from Q4’s pace. Nvidia noted that the guidance excludes China data center compute revenue.

On Wednesday’s earnings call, Nvidia CEO Jensen Huang raised his previous chip revenue target, saying the company will exceed the $500 billion goal. Supply will meet demand through this year and next.

At the GTC conference last October, Huang revealed that Nvidia had secured a total of $500 billion in chip orders for the 2025 and 2026 calendar years, including next-generation Rubin chips set to enter mass production this year.

Huang said customers are racing to invest in AI compute. Compute demand is growing extremely rapidly. Enterprise adoption of AI agents has surged. Regarding “space data centers,” he said the current space data center economy is still “barren,” but conditions will change over time.

After the results, Nvidia’s shares — which had already closed more than 1% higher — extended gains in post-market trading, rising more than 4% at one point. Analysts attributed the positive reaction to: data center and total revenue both beating expectations; gross margin continuing to improve as the next-generation Blackwell architecture ramps up; and even stronger guidance excluding part of China revenue, reinforcing the narrative of resilient AI computing demand.

However, during the earnings call, the stock steadily gave up gains and turned negative in post-market trading, falling more than 1%. Some commentators said the reversal showed investors were not fully convinced by the latest guidance, suggesting lingering worries about an overheated AI economy will continue to weigh on Nvidia. Others noted that operating expenses maintained strong growth, and the inclusion of stock-based compensation (SBC) in non-GAAP figures starting Q1 may temporarily shift investor perceptions of “profit growth.”

### Q4 Revenue Hits Quarterly Record, Gross Margin at 18-Month High

Nvidia’s Q4 revenue rose 73% year-on-year to $68.127 billion, accelerating notably from 62% in the prior quarter and above the company’s own midpoint guidance of $65 billion. Analysts had expected $65.91 billion, up about 68% year-on-year.

Full fiscal 2026 revenue also hit an annual record of $215.938 billion, up 65% year-on-year.

Gross margin was another bright spot: non-GAAP gross margin reached 75.2%, up 1.7 percentage points year-on-year and 1.6 percentage points quarter-on-quarter, the highest since Q2 fiscal 2025. It beat the consensus estimate of 74.7% and the optimistic forecast of 75.0%.

Nvidia CFO Colette Kress explained that the year-on-year improvement in gross margin came from “lower inventory provisions,” while the quarter-on-quarter rise was related to “a better product and cost structure” driven by the ongoing ramp of Blackwell chips.

Nevertheless, non-GAAP gross margin for full fiscal 2026 declined from 75.5% to 71.3%, down 4.2 percentage points year-on-year, indicating structural pressure on full-year profitability during the platform transition and supply ramp-up phase.

### Data Center: Compute Growth Steadies, Networking Takes Off Accelerately

Nvidia’s data center business generated revenue of $62.314 billion in Q4, up 75% year-on-year, accelerating from 66% in the prior quarter. Analysts had expected roughly 70% growth to $60.36 billion.

Within the data center segment, Nvidia disclosed two closely watched figures:

- Data center compute revenue: $51.334 billion, up 58% year-on-year, slightly above Q3’s 56% growth.

- Data center networking revenue: $10.980 billion, up 263% year-on-year, far exceeding Q3’s 162% growth.

Nvidia attributed the explosive networking growth to the “launch and steady ramp” of the NVLink compute fabric for GB200 and GB300 systems, alongside continued growth in Ethernet and InfiniBand platforms.

In other words, the market should not only focus on GPU shipment trends but also recognize that Nvidia is packaging “compute, interconnect, and systems” into a more irreplaceable integrated solution. The high growth in networking revenue is the financial reflection of this strategy.

In terms of customer mix, revenue from hyperscalers accounted for slightly more than 50% of total data center revenue in Q4, remaining the largest customer category. However, growth during the quarter came more from other data center customers, indicating a broadening revenue base and easing concentration risk.

### Blackwell Boosts Gaming Demand; Near-Term Pressured by Supply and Channel Dynamics

Nvidia’s gaming business posted revenue of $3.727 billion in Q4, up 47% year-on-year, below the $4.01 billion estimate and compared with 30% growth in the prior quarter.

Nvidia explained the year-on-year acceleration was mainly driven by strong demand for Blackwell chips. However, revenue fell 13% quarter-on-quarter due to a “natural pullback in channel inventory after the holiday season.” Notably, Nvidia explicitly warned that supply constraints are expected to become a headwind for the gaming business in Q1 and beyond.

Q4 professional visualization revenue reached $1.321 billion, surging 159% year-on-year, far exceeding the $770.7 million estimate and up from 56% growth in the prior quarter.

Propelled by Blackwell, professional visualization more than doubled year-on-year and rose 74% quarter-on-quarter, becoming one of the brightest growth segments outside data centers, though its scale remains much smaller.

### Q1 Revenue Guidance Midpoint Up Nearly 77% Year-On-Year; Excludes China Data Center Compute

Nvidia provided Q1 revenue guidance of $78 billion, plus or minus 2%, implying a range of $76.44 billion to $79.56 billion. This would mark a new quarterly record above Q4’s level.

At the midpoint, Nvidia expects Q1 revenue to rise 76.9% year-on-year, accelerating from 73% in Q4.

The guidance midpoint is not only above the consensus estimate of $72.78 billion but also exceeds the buy-side optimistic range of $74–75 billion.

Nvidia’s Q1 gross margin is in line with the most optimistic buy-side forecasts and is set to hit the highest level since Q2 fiscal 2025.

Non-GAAP adjusted gross margin for Q1 is expected to be 75%, plus or minus 50 basis points, or 74.5% to 75.5%. The buy-side optimistic estimate was 75%, while the sell-side consensus was 74.7%.

### Stock-Based Compensation to Be Included in Non-GAAP Starting Q1

Alongside the earnings release, Nvidia announced that, starting in Q1, non-GAAP financial measures will no longer exclude stock-based compensation (SBC). As a result of this change, Nvidia estimates a roughly $1.9 billion impact on Q1 non-GAAP operating expenses.

This shift will alter the long-standing standard metric used by the market to compare profitability and expense ratios across peers. It may trigger near-term recalibration of consensus models and give investors a clearer view of the real costs Nvidia incurs to maintain leadership in talent and R&D.

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