Nvidia Q1 FY2026 Earnings: Growth Remains Relentless, but Headwinds Build

Nvidia has kicked off fiscal year 2026 with another spectacular quarter, cementing its position as the undisputed engine of the global artificial intelligence boom. For the first quarter the company posted record revenue and continued dominance in AI data center infrastructure. Yet the results also reflect growing complexity: geopolitical risks are rising, China revenue is under pressure, and the cost of maintaining global leadership is increasing.

Let’s break down the key takeaways from the quarter — starting with the core numbers.

Nvidia Q1 FY2026 Earnings

Nvidia reported revenue of $44.04 billion in Q1 FY2026 (vs. 43.31 billion expected), up 69% year-on-year and 12% quarter-over-quarter. The company’s non-GAAP earnings per diluted share (EPS) came in at $0.81, which includes the negative impact of a $4.5 billion inventory and purchase obligation charge tied to U.S. export restrictions to China. Excluding this charge and related tax effects, EPS would have been $0.96, exceeding Wall Street’s consensus estimate of $0.93.

Other key metrics include:

• Gross Margin (non-GAAP): 61%, notably down from prior levels due to the $4.5 billion charge.
• Gross Margin (non-GAAP, excluding H2O charge): 71.3%
• Operating Expenses (non-GAAP): $3.5 billion

The results reflect the durability of Nvidia’s AI business even under geopolitical strain. Despite the lower-than-usual gross margin, investors welcomed the company’s beat on top-line revenue and resilience in data center demand. Nvidia shares rose more than 5% in after-hours trading on the day of the release.

Data Center Growth

Nvidia’s Data Center segment is the heart of its business, and Q1 FY2026 confirmed its explosive momentum. The segment generated $39.12 billion in revenue, up 73% year-over-year and 23% sequentially, accounting for nearly 89% of total company revenue.

This growth was driven by sustained demand for Nvidia’s H100 (Hopper architecture) GPUs, which are deployed across hyperscaler clients like Microsoft (Azure), Amazon (AWS), Meta (Llama models), and Google (Gemini), all of which are expanding their generative AI and LLM capabilities.

The strength in the segment wasn’t limited to cloud titans. Nvidia also noted growing demand from:

• Enterprise customers investing in private AI infrastructure
• Sovereign initiatives focused on developing national AI capabilities
• AI factory deployments — large-scale data centers purpose-built for training and deploying AI models, a concept championed by Jensen Huang

Huang described this transition as the start of a new industrial era:

“Companies and countries are partnering with Nvidia to build a new type of data center — AI factories — to produce a new commodity: intelligence.”

Looking ahead, the anticipation around the upcoming Blackwell architecture is expected to fuel continued growth in this segment. Blackwell GPUs — featuring innovations in compute density, memory, and power efficiency — are expected to begin ramping later this year, and will be foundational to the next wave of AI infrastructure investment.

China Export Curbs

The most significant headwind this quarter came from U.S. export restrictions, which severely limited Nvidia’s ability to sell its H20 chips — previously the only high-performance AI chips cleared for export to China.

In Q1 FY2026, Nvidia faced:

• $2.5 billion in lost revenue from H20 shipments that could not be completed
• A $4.5 billion charge related to unsellable inventory and contractual obligations with suppliers
• An effort to front-load H20 deliveries, resulting in $4.6 billion in China sales before the ban fully took effect

Thanks to that pre-ban surge, China still contributed 12.5% of total Q1 revenue — roughly $5.5 billion. However, Nvidia expects that figure to drop sharply in Q2, as the export ban becomes fully effective. Management has already forecast a $8 billion reduction in Q2 revenue tied to the H20 ban.

During the earnings call, CEO Jensen Huang voiced concern about the long-term risks of excluding China from the U.S. semiconductor ecosystem:

“We’re at risk of being cut off from one of the world’s largest AI developer bases.”

Huang also made clear that Hopper chips can no longer be modified for China, closing off an earlier workaround. While Reuters has reported that Nvidia is preparing a Blackwell variant for the Chinese market, this was not confirmed during the call.

The China situation now presents a structural challenge: a high-revenue, high-growth market has effectively been closed off, forcing Nvidia to seek growth elsewhere.

Q2 Guidance

For the second quarter of fiscal 2026, Nvidia expects revenue of $45.0 billion, plus or minus 2%. This guidance reflects a loss of approximately $8.0 billion in expected revenue due to the latest U.S. export restrictions affecting sales of H20 chips to China.

The company also issued the following detailed outlook:

• GAAP Gross Margin: 71.8% ± 50 basis points
• Non-GAAP Gross Margin: 72.0% ± 50 basis points

Nvidia noted it is working toward reaching gross margins in the mid-70% range later this fiscal year.

• GAAP Operating Expenses: ~$5.7 billion
• Non-GAAP Operating Expenses: ~$4.0 billion

Full-year FY2026 expense growth is expected to be in the mid-30% range.

• Other Income/Expense (GAAP & Non-GAAP): ~$450 million in income, excluding valuation effects on equity holdings
• Tax Rate (GAAP & Non-GAAP): 16.5% ± 1%, excluding discrete items

Although the guidance came in slightly below analyst expectations (consensus at $45.9 billion per LSEG), Nvidia emphasized that core demand remains exceptionally strong, particularly ahead of the ramp-up of the new Blackwell architecture. As Reuters noted, investor sentiment remains constructive, but macro and regulatory risks are being priced more carefully given the evolving U.S.–China technology policy landscape.

Global Expansion

To offset the loss of Chinese sales and reduce reliance on the U.S.-China corridor, Nvidia is making major investments in other strategic regions.

Key highlights include:

• A 10-square-mile data center complex in the UAE, potentially drawing up to 5 gigawatts of compute power — one of the largest sovereign AI infrastructure investments globally
• New sovereign AI partnerships in Saudi Arabia and Taiwan
• A shift in focus toward EMEA and Asia-Pacific, where governments are funding domestic AI development to reduce reliance on U.S. cloud providers

These efforts support Nvidia’s goal of becoming the global backbone of sovereign and enterprise AI compute — not just in the West, but across the developing world and energy-rich regions like the Gulf.

Colette Kress stated:

“We now have a line of sight to projects requiring tens of gigawatts of Nvidia AI infrastructure.”

As the Financial Times noted, this international push not only supports long-term growth, but also provides Nvidia with geopolitical diversification that is increasingly essential in today’s market.

Political Undercurrents and Strategic Risks

Jensen Huang’s political tone during the Q1 earnings call was uncharacteristically direct, reflecting the high stakes Nvidia faces in the current regulatory environment.

Huang specifically praised President Donald Trump’s decision to rescind the “AI diffusion rule”, which would have imposed further restrictions on international AI chip sales. His remarks were clear:

“President Trump wants America to win. And he also realizes that we’re not the only country in the race.”

At the same time, Huang warned that China’s AI industry is sophisticated and catching up fast, suggesting that isolating China could result in unintended consequences for U.S. technological leadership.

This blend of concern and praise reflects the new reality for Nvidia: it is no longer just a market leader — it is now a strategic asset, operating in the crosshairs of foreign policy, trade regulation, and national security debates.

Conclusion

Nvidia’s Q1 FY2026 results — $44.04 billion in revenue, $39.12 billion in data center sales, and $0.81 EPS ($0.96 excluding this charge and related tax effects)— reaffirmed its status as the most important company in the AI economy. Demand remains robust, product leadership is intact, and the runway for expansion remains long.

But the quarter also marks a turning point. Nvidia is no longer growing in a frictionless world. Export bans, political pressure, and emerging global rivals are reshaping the path forward.

To remain dominant, Nvidia must now do more than deliver performance. It must navigate geopolitical risk, deepen global alliances, and scale infrastructure in a world where compute is currency — and leadership is contested.

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