NVIDIA has once again delivered an earnings report that exceeded expectations. However, Bernstein believes that the truly critical part of this performance is not in the already realized second quarter, but in the company's assessment of the next product cycle and demand for the calendar year 2027.

In a report released on August 27, Bernstein raised NVIDIA's target price from $315 to $400, maintaining an "outperform" rating. The firm also significantly increased its fiscal year 2028 revenue forecast from $539.6 billion to $690.3 billion and raised its corresponding non-GAAP EPS estimate from $12.52 to $15.80.

The core judgment supporting this upward revision is that Blackwell demand continues to grow rapidly, and Rubin has already begun to ramp up substantially. Bernstein believes Rubin may drive NVIDIA into its largest product cycle in company history.

Data Center Revenue Nears $90 Billion in a Single Quarter

In NVIDIA's second quarter, revenue reached $96.221 billion, above the market's expected $92.293 billion and surpassing the company's prior guidance of $91 billion; non-GAAP EPS was $2.22, exceeding the market's expectation of $2.09.

The outperformance was mainly driven by the data center business. This segment achieved revenue of $89.023 billion, an 18% sequential increase and a 117% year-over-year increase, surpassing the market's anticipated $85.949 billion.

Among them, revenue from hyperscale cloud service providers was $48.71 billion, up 13% sequentially and 102% year-over-year; AI cloud, industrial, and enterprise customer revenue was $40.313 billion, up 25% sequentially and 138% year-over-year. This indicates that NVIDIA's growth is not solely dependent on a few large tech companies; the demand from AI cloud service providers and enterprise customers is also rapidly expanding.

The "Edge Computing" division, composed of gaming, professional visualization, automotive, and other businesses, generated $71.98 billion in revenue, representing a 13% sequential increase and approximately 28% year-over-year growth, exceeding market expectations.

The profitability remained relatively stable. The second-quarter non-GAAP gross margin was 75%, in line with guidance and market expectations; non-GAAP operating margin reached 66.5%, a sequential increase of about 0.6 percentage points.

Rubin Ramps Up, Data Center Revenue Expected to Exceed $100 Billion Next Quarter

NVIDIA provided a mid-point third-quarter revenue guidance of $108 billion, higher than the market's expectation of $104.6 billion; according to Bernstein's calculations, the implied non-GAAP earnings per share are approximately $2.46, also surpassing the market's expectation of $2.36.

An estimated additional revenue of around $12 billion is expected on a sequential basis, with the majority still coming from the data center business. Bernstein estimates that NVIDIA's third-quarter data center revenue may exceed $100 billion, with Rubin contributing approximately 20%.

This implies that Rubin is no longer just a long-term product expectation but is starting to have a significant impact on current revenue. While Blackwell is still in a growth phase, Rubin is entering a steep climb, and the demand for both generations of platforms is stacking up in the short term.

More importantly, NVIDIA has significantly raised its growth expectations for the fiscal year 2028, which covers most of the calendar year 2027. Based on the management's provided growth rate of around 70%, the company's annual revenue could reach $680 billion to $700 billion.

Bernstein previously forecasted NVIDIA's fiscal year 2028 revenue to be $539.6 billion and has now raised the estimate to $690.3 billion, representing a nearly 28% increase; the revenue forecast for fiscal year 2029 has also been adjusted from $623 billion to $954.1 billion.

The report notes that this outlook is still subject to supply constraints. The management believes that if the supply of key components such as memory and wafers further improves, existing demand could even support a doubling of revenue year-over-year. However, this is a demand potential assessment and not the company's formal revenue guidance.

Gross Margin Under Pressure, But Profitability Logic Intact

Compared to the revenue outlook, the gross margin was a relatively weaker part of this earnings report.

NVIDIA expects the third-quarter non-GAAP gross margin to be around 74%, below the market's expectation of 74.8%; it may further decline to 71%–72% in the fourth quarter, primarily impacted by rising memory prices. As product price adjustments gradually take effect, the company anticipates the gross margin to recover to 72%–73% in the next fiscal year, still below the previous outlook of around 75%.

According to Bernstein, gross margin pressure has been acknowledged, but the impact remains manageable. In an environment where memory costs are significantly rising, Nvidia's gross margin has only declined by a few percentage points, indicating that the company still possesses strong pricing power.

Based on Bernstein's latest forecast, Nvidia's non-GAAP earnings per share for the fiscal year 2028 is expected to reach $15.80, a 26% increase from the original forecast; the 2029 earnings per share forecast has been raised from $14.81 to $22.28.

In other words, while the decline in gross margin may weaken the profit elasticity from some revenue growth, with rapidly expanding revenue scale, overall profitability is still expected to see significant growth.

$279 billion Supply Commitments, Balance Sheet Becomes Another Moat

As the scale of AI infrastructure investment expands, Nvidia's core constraint is shifting from orders to supply.

By the end of the second quarter, the company's supply-related commitments have surged from $119 billion in the previous quarter to $279 billion; when including cloud service agreements, data center leases, and equity investments, the total commitments amount to $366 billion.

During the same period, Nvidia's inventory increased to $31.575 billion, with days of inventory rising from approximately 114 days to 118 days. Bernstein believes this mainly reflects the company's early stocking for the launch and ramp-up of the Vera Rubin platform.

The report further suggests that Nvidia's balance sheet is becoming a competitive moat as important as its technological prowess. With supply commitments in the hundreds of billions of dollars, the company can pre-secure key resources such as memory, wafers, packaging, while investing in cloud infrastructure and ecosystem partners.

For smaller competitors, even with chip designs ready, it is challenging to replicate this procurement capability and supply chain control. The AI chip competition is no longer just about single-chip performance but also involves capital, capacity, system delivery, and ecosystem expansion capabilities.

$400 Price Target Still Depends on High Growth Materializing

Bernstein has raised Nvidia's price target from $315 to $400, based on a 7average non-GAAP EPS of $19.04 for fiscal years 2028 and 2029, applying a roughly 21x P/E ratio. Compared to the previous valuation of 25x, the target price increase mainly stems from a substantial increase in earnings forecasts rather than multiple expansion.

Based on the closing price of $209.66 on August 26, the $400 price target corresponds to approximately 91% upside potential.

However, this valuation is based on several key assumptions: that Rubin can ramp up as planned, that the supply chain can support rapid growth, that memory price increases will not continue to erode gross margins, and that major cloud providers will continue to maintain high AI capital expenditure.

Bernstein's core conclusion is that NVIDIA's recent stock price performance, relative to growth cycles, does not necessarily indicate that the growth cycle has peaked. As Rubin starts contributing to revenue, the market's forecasts for the calendar year 2027 earnings may face significant upward revisions. The real driver of stock price potential will also shift from "is there demand" to whether NVIDIA can obtain sufficient supply to convert its substantial backlog into revenue.

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