CITI’S TAKE
NVDA reported better-than-expected Jul-Q results amid robust AI demand. Moreover, the company provided FY28 (CY27) revenue outlook of 70% Y/Y growth lifted by agentic AI demand though supply constrained vs customers’ forecasts doubling which should reassure investors on continued AI demand into CY28. That said, Oct-Q and FY28 gross margin outlook is being reset to 72-73% from 75% expectations with Jan-Q as the trough due to higher memory costs partially offset by price increases. Net-net, higher sales are partially offset by lower gross margins driving our FY27/28/29 EPS up 2%/25%/38% and TP to $315 or 21x vs prior 24x to reflect lower market multiples times revised CY27 EPS. Maintain Buy.
70% FY28 Revenue Growth Outlook — Management attributed its 70% FY28 growth outlook primarily to accelerating demand from agentic AI, including enterprise AI adoption, sovereign AI initiatives, and AI-cloud deployments. Management characterized demand as stronger than previously anticipated and above current supply availability.
ACIE vs Hyperscaler Growth — Management stated that ACIE customers are expected to grow faster than hyperscalers, supported by increasing deployments across enterprises, sovereign AI projects, AI clouds, and neo-cloud providers. Management also noted that hyperscalers increasingly consume capacity from neo-cloud operators. One customer previously reported within ACIE moved to hyperscaler following a large-scale consolidation of operations (we think SPCX).
Gross Margins & Pricing — Management remains confident in achieving 72-73% gross margin in FY28, which reflects known memory costs, supply agreements, and pricing actions already communicated to customers. Nvidia implemented pricing increases across multiple systems, including Vera Rubin, to offset a portion of higher input costs. Management emphasized that pricing decisions are made at the system level, not component-by-component. The company deliberately absorbed a portion of memory inflation rather than fully passing through the cost increase to customers.
