For the fiscal second quarter of 2027, which ended on July 26, 2026, Nvidia reported revenue of $96.2 billion, a year-over-year increase of 106%. However, management has guided for a deceleration in growth rates. The preliminary guidance for the fiscal third-quarter suggests revenue of approximately $108 billion, which would represent an 89% year-over-year increase. Looking further ahead, Chief Financial Officer Colette Kress indicated that the company expects revenue growth of about 70% for fiscal 2028. While these figures remain exceptionally high by historical standards, they mark a clear transition from hyper-growth to a more sustainable, albeit still robust, expansion phase.
The primary metric determining whether the current valuation is supported is Nvidia’s gross margin. Gross margin represents the percentage of revenue retained after deducting the direct costs of manufacturing and selling products. For a company whose business model relies on selling proprietary, high-performance computing hardware, this figure is a direct proxy for pricing power. If competitors or alternative technologies offer sufficient performance at lower prices, gross margins would be the first indicator of that pressure, even if total revenue continues to rise due to increased volume.
Nvidia has demonstrated remarkable resilience in this area. The company’s gross margin has remained at or above 70% for 12 of the last 13 quarters. This streak began in the quarter ending July 2023 with a 70.1% margin. It peaked at 78.4% in the first quarter of fiscal 2025, prior to the widespread adoption of the newer Blackwell chips. Since the Blackwell launch, margins have stabilized in a range between approximately 72% and 75%. Analysts and investors generally view a gross margin dropping below 70% in a quarter without a one-time charge as a significant warning sign that could erode the stock’s valuation support.
Wall Street sentiment remains overwhelmingly positive, with 58 out of 59 analysts rating the stock a “buy.” The average price target stands at $327.70, representing a potential 38.8% gain from the recent trading levels. For fiscal 2028, which ends in January 2028, consensus estimates project revenue of $682.7 billion, up 66% from the previous year, and earnings per share (EPS) of $15.68, up 69%. Notably, these estimates have been revised upward consistently; in the past 30 days, analysts made 42 upward revisions to EPS estimates and no downward revisions. Ninety days prior, the fiscal 2028 EPS estimate was $12.67, indicating a significant upward shift in expectations.
The fundamental driver of this confidence is the transition from selling individual components to providing integrated AI infrastructure. Chief Executive Officer Jensen Huang described the current business model in four words on the latest earnings call: “Now, compute is revenue.” Nvidia is now selling “AI factories” comprising the Vera CPU, Rubin GPU, and associated networking technologies like NVLink and Spectrum-X. The new Vera Rubin platform is particularly significant, generating an estimated $40 billion in revenue per gigawatt of data center capacity, compared to $25 billion for the previous Blackwell generation. This efficiency gain is critical as hyperscaler capital expenditure (capex) is projected to reach $1.3 trillion by 2027.
Despite the strong fundamentals, the stock trades at a price-to-earnings (P/E) ratio of approximately 15x for fiscal 2028 earnings. This valuation is considered justifiable by many analysts given the projected growth rates, but it leaves little room for error. To reach a price of $400 per share, the stock would need to gain approximately 69%. While this is a substantial increase, it is modest compared to the 171% return the stock delivered in 2024. However, achieving such gains from a $5.8 trillion market capitalization is structurally more difficult than from a smaller base. The stock has already returned 26.86% year-to-date and over 1,000% over the past five years.
The key risk for investors is not the absence of demand, but the potential for commoditization of AI hardware. If alternative solutions emerge that offer comparable performance at a lower cost, Nvidia’s gross margins could face downward pressure. Until that occurs, the company’s ability to maintain margins above the 70% threshold remains the central pillar supporting its premium valuation.
