NVIDIA has been one of the best-performing Technology giants in the US stock market over the past two years, and since 2024, its stock price has experienced significant growth, at one point more than doubling. This stock performance reflects, to a certain extent, the market's recognition of its position in AI chips and expectations for its future.

However, at the end of January this year, impacted by the low-cost AI model from DeepSeek, the market worried about changes in the competitive landscape and concerns that the investment returns for AI Hardware might be affected. Coupled with the overall sector's valuation correction, NVIDIA's stock price once plunged over 17%.

Since February, the market's concerns have gradually eased, and NVIDIA's stock price has rebounded. However, in recent trading days, the stock price of NVIDIA has shown a noticeable decline, with underlying causes being complex, including doubts about whether the demand for AI computing power is excessive, worries regarding the production progress of NVIDIA's Blackwell chips and the stability of its supply chain, as well as uncertainties in the macroeconomic environment and market sentiment, which may all be related.

On February 26, after Post-Market Trading, NVIDIA will release its Q4 earnings for fiscal year 2025. At this important juncture, what kind of impact will this performance have on the stock price? How should this earnings report be interpreted? Let's look at four main points of focus.

1. Actual performance/earnings guidance VS earnings expectations

The comparison between actual and expected figures is always a critical focus when it comes to earnings, as it usually has a significant impact on short-term stock prices.

Currently, Analysts estimate that NVIDIA's Q4 revenue will reach $38.157 billion, a year-on-year growth of 72.63%; EPS is expected to be $0.798, a year-on-year growth of 61.83%. These figures can be found on the Futu APP > NVIDIA stock page > Company > Financial (USD) > Financial Estimates.

NVIDIA's previous revenue guidance for Q4 was $37.5 billion, and the current market expectation of approximately $38.2 billion is relatively high, so there may be deviations between expected and actual performance.

If the actual performance announcement significantly exceeds expectations, it may create substantial bullish sentiment for short-term stock prices. Conversely, if the actual performance falls below expectations, it may create a bearish sentiment for the short term.

So what if NVIDIA's performance exceeds expectations by only a small margin? It may also be somewhat bearish because the market has high expectations for NVIDIA. In order to further boost the stock price, simply meeting expectations may not be enough; it may need to be excellent.

In addition to observing actual performance, the earnings guidance provided by management is also very important. Currently, analysts forecast that Q1 of fiscal year 2026 will reach $42.0144 billion. Based on this forecast, earnings guidance that significantly exceeds expectations may trigger a surge in stock prices, while guidance that falls below expectations could be substantially bearish for short-term stock prices.

Next, let's delve into the specifics of past financial quarters to further understand this logic.

For example, NVIDIA's previous Q3 2024 earnings report showed that its revenue was $18.12 billion, exceeding the market's expectation of $16.11 billion, and its EPS was $3.71, significantly surpassing expectations. In terms of earnings guidance, NVIDIA provided a revenue guidance of about $20 billion, slightly exceeding expectations. However, after the performance announcement, the market may have perceived that NVIDIA's earnings were not explosive enough, resulting in a decline in stock price the following day.

By Q1 of fiscal year 2025, NVIDIA's actual revenue was $26 billion, significantly exceeding the previously provided earnings guidance and market expectations, while the company's revenue guidance for Q2 of fiscal year 2025 reached $28 billion, also greatly exceeding expectations, and NVIDIA's stock price surged in the short term after the earnings report was released.

However, by Q2 of 2025, NVIDIA's revenue and next quarter's revenue guidance only slightly exceeded expectations, and the guidance for gross margin was below market expectations, thus triggering a short-term decline in stock price.

In Q3 of 2025, NVIDIA's performance exceeded market expectations, but the guidance for Q4's performance did not meet the highest market expectations. Investors' high growth expectations for NVIDIA were not fulfilled, leading to a decline in stock price after the earnings announcement.

Therefore, for NVIDIA's latest financial quarter, it is essential to focus on "the comparison of NVIDIA's actual performance and guidance with the forecasts made by Wall Street Analysts" to see if NVIDIA can deliver satisfactory results to the market.

2. Datacenter revenue

From a business perspective, NVIDIA's datacenter segment has historically been a major growth engine, with its revenue accounting for only 37% in Q1 of FY21. In just three years, this proportion reached approximately 80.1% in Q3 of FY24.

Starting from Q4 of FY2023, NVIDIA's datacenter revenue began to reverse the previous downward trend, showing growth both year-on-year and quarter-on-quarter. In the following six financial quarters, driven by the demand for computing chips in large language models, recommendation engines, and generative AI application training, NVIDIA's datacenter revenue has been rapidly increasing each quarter.

According to NVIDIA's performance data for Q3 of FY2025, datacenter revenue was approximately $30.8 billion, a year-on-year increase of 112% and a quarter-on-quarter growth of 17%, continuing to be the main driver of revenue growth, with its share of total revenue reaching a historical high of 87.8%.

From the latest situation, NVIDIA has launched the Blackwell architecture in Q4, and the market is paying close attention to it as well as the performance of its datacenter business. Currently, NVIDIA's Blackwell architecture GPU has reserved over 70% of Taiwan Semiconductor's CoWoS-L advanced encapsulation capacity, indicating that market demand remains strong. However, it remains to be seen whether there will be shortages or delays, and whether it will continue to face challenges from DeepSeek's low-cost AI models.

Additionally, NVIDIA may announce a new GPU architecture, the Rubin architecture (focusing on optimizing the performance-to-power ratio), at the GTC conference scheduled for March, which could also become a significant driver of NVIDIA's performance growth in the second half of 2025 and beyond, warranting more attention.

Overall, while NVIDIA's datacenter revenue has shown remarkable growth in several recent quarters, it is difficult to expect that its revenue growth can continue to accelerate for future performance; given the large revenue base, the growth rate is likely to gradually slow down.

In future performance, attention can be paid to whether the revenue growth rate of its Datacenter can stabilize at a relatively high level after gradually slowing down, which may largely depend on the demand and shipment conditions of its latest generation GPU architecture, Blackwell, and the expected conditions of the next generation architecture, Rubin.

3. Inventory Situation

For an industry like the chip sector, which has cyclical fluctuations, inventory levels are also a very important indicator for measuring cyclical changes and growth expectations. This is naturally also significant for NVIDIA.

Because when industry demand decreases and supply excess occurs, the company's inventory level will rise, sales pressure will increase, thereby putting pressure on the stock price. Conversely, when the cycle reverses and demand improves, the company's inventory level will also decrease rapidly, and sales prospects will improve.

Therefore, in investment, it is necessary to focus on specific data regarding inventory levels in the company's performance to assess whether the company can continuously meet the high demand for its products in the market. A more appropriate measure for changes in inventory levels is inventory/revenue; the larger this ratio, the higher the inventory level, which in turn indicates greater sales pressure.

For example, NVIDIA's inventory/revenue began to rise continuously starting from Q4 of the 2022 fiscal year, and the stock price also started to decline from a high point around that time.

In the fiscal quarter from Q1 2024 to Q1 2025, NVIDIA continued to grow significantly, and inventory liquidation showed obvious effects, with its inventory/revenue decreasing from 85.3% at the end of the 2023 fiscal year to 21.8% in Q3 of the 2025 fiscal year, which is at a historical low level.

In the future, attention can continue to be paid to whether NVIDIA's inventory/revenue can maintain a downward trend; if there is a significant rebound, caution may be warranted.

4. Profitability

During the ongoing upward cycle, the improvement in NVIDIA's profitability has also been one of the key concerns for the market.

NVIDIA's gross margin and net profit margin have remained at a high level over the past few quarters, with the gross margin exceeding 70%. Although there are some concerns in the market regarding the sustainability of its profitability, the company hopes to maintain a high profit level by continuously launching new products (such as Blackwell) and optimizing its cost structure.

In terms of gross margin, over the past few fiscal quarters, as NVIDIA gradually emerged from the cyclical low, its gross margin level has been climbing, reaching a historical high of 78.35% in Q1 of fiscal year 2025. However, by Q2 of 2025, NVIDIA's gross margin declined to approximately 75.15%, and further dropped to 74.56 in Q3 of 2025.

The decline in gross margin over the past two quarters may be due to the increased costs in the early stages of mass production of the latest product Blackwell (which requires material reserves and small-scale trial production), as well as the increased business complexity and costs associated with the growing share of the Datacenter business, which in turn lowered the gross margin level.

In terms of net margin, NVIDIA also experienced a rapid upward trend in previous fiscal quarters, reaching 57.14% in Q1 of fiscal year 2025. However, in Q2 of fiscal year 2025, due to the decline in gross margin, NVIDIA's net margin also saw a simultaneous decrease, approximately 55.3%, and further slight adjustment to 55.04% in Q3 of 2025.

For the upcoming Q4 performance of fiscal year 2025, we can continue to observe whether NVIDIA's gross margin and net profit margin can stabilize at a relatively high level after a short-term decline, following the advancement of the mass production of the new product Blackwell and the improvement of production efficiency.

5. Key Summary and Investment Strategy

To summarize the previous content briefly, during the ongoing upward cycle, NVIDIA's performance elasticity is significant, and its performance results greatly affect the short-term stock price. Four key points need to be highlighted.

First, the comparison between the actual performance and expectations, as well as the comparison between the performance guidance and expectations. The gap between expectations and reality will significantly impact NVIDIA's short-term stock price.

Second, the revenue situation of the Datacenter. This segment of the Business is crucial for NVIDIA, focusing on whether its revenue growth rate can stabilize at a relatively high level after continuously slowing down.

Third, inventory levels. Monitor whether NVIDIA's inventory/revenue can remain at a low position.

Fourth, profitability. Observe whether NVIDIA's gross margin and net profit margin can continue to maintain a high level after a short-term decline.

Finally, around the time NVIDIA releases its results, there may exist potential trading opportunities. How can these opportunities be seized?

From the perspective of volatility, there is significant volatility before the performance release, which slows down after the release. For the single-day price fluctuation following the performance, options market betting is ±9.3%, and in the past four quarters, NVIDIA's average single-day price fluctuation after performance was approximately ±8.5%.

Based on this logic, before the results, one could consider strategies to go long on volatility options, for example.Buy Long Straddle.andBuy Long Strangle.For the post-earnings betting, use the opposite volatility bearish options strategy (for example,Sell Short Straddle.andSell Short Strangle.）。

From the perspective of stock price movement direction: If expected actual performance and performance guidance are both expected to exceed market expectations, and the latest performance and recent developments release some positive signals, investors may consider a bullish direction on the stock (Buy the underlying stock or buy long call options,especially paying attention to the negative impact of post-earnings volatility decline on option prices if buying long call options).

If it is felt that NVIDIA is currently more susceptible to negative factors, then consider the opposite direction. However, if trading short-term due to short-term factors, special attention should be paid to Resistance and Support levels, particularly notice stop-loss and take-profit. If bullish on NVIDIA's long-term upward potential, then that is another matter.

Risk warning: Although market expectations for NVIDIA are high, investors still need to be wary of potential risks, such as supply chain disruptions, intensified market competition (such as the impact of events like DeepSeek on the AI industry), and changes in the macroeconomic environment.

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