Nvidia's China-Free Growth Plan Sets Stage for Record-Breaking Revenue

Nvidia's recent earnings call has shed light on its growth prospects and the company's stance on China. Management provided a forecast for next year's growth, which indicates a significant increase in revenue. According to this forecast, Nvidia's revenue is expected to rise by 70% year-over-year in fiscal 2028.

The current Wall Street consensus estimate for Nvidia's fiscal 2028 revenue stands at around $574 billion. However, based on the company's own forecast and its current run rate, the implied sales for next year could be closer to $700 billion. This represents a significant gap between Wall Street's expectations and Nvidia's new reality.

The Chinese market has been a point of concern for Nvidia in recent times. During the earnings call, it was revealed that Hopper-architecture products shipped to China accounted for less than 1% of Nvidia's data center revenue. Furthermore, these shipments were dilutive to Nvidia's gross margin. As a result, management has stated that there is no China data center compute revenue in their forward outlook.

This development has implications for the company's growth prospects and its valuation. Nvidia's position in data centers remains strong, despite increasing competition from Advanced Micro Devices and custom silicon designers like Broadcom. The company's growth outlook over the next 18 months underscores that AI labs, neoclouds, enterprises, and sovereign buyers are becoming just as important as hyperscalers.

Nvidia's stock trades at a forward price-to-earnings (P/E) ratio of around 23, which is considered modest compared to its past highs. The company's PEG ratio is also around 0.6, suggesting that the market is not paying up for Nvidia's expected future earnings growth.

Overall, Nvidia's multi-year guidance has reinforced the idea that the bottlenecks to the AI build-out revolve around physical components. The company's ability to achieve significant growth without relying on China suggests that its position in the market is secure.