I keep buying NVIDIA because the loudest voices in the room are arguing about the wrong side of the ledger. The market keeps asking whether hyperscalers will slow their AI spend. The hyperscalers keep answering by writing bigger checks. That gap between fear and order books is why my finger keeps landing on the buy button before this August 26 earnings report from NVIDIA (NASDAQ:NVDA | NVDA Price Prediction).
The Demand Side Keeps Accelerating
Here is the receipt. Microsoft (NASDAQ:MSFT) just spent $30.88B on capex in a single quarter, up 84.39% year over year, with an AI business run rate of $37B growing 123%, and commercial remaining performance obligations of $627B, up 99%. That backlog is contracted revenue waiting on compute that does not yet exist. Every dollar of that spend flows toward the picks and shovels vendor that owns the accelerator, the networking, and the software stack. NVIDIA sold $75.246 billion of Data Center revenue last quarter, up 92% year over year, with networking alone at $14.8 billion, up 199%. Supply commitments now sit at $119.0 billion. Jensen Huang called it “the largest infrastructure expansion in human history.” The order book agrees with him.
The Basic Economics Lesson
When demand runs faster than supply, the toll booth operator wins. NVIDIA’s Q1 FY27 non-GAAP gross margin came in at 75.0%, operating margin at 60.38%, net margin at 55.60%. Return on equity hit 101.49% and return on invested capital reached 92.21%. Free cash flow came in at $48.554 billion in the quarter, up 85.41%. Debt to equity is 0.073 and interest coverage sits at 503x. This is a balance sheet that funds the next platform while returning cash. Management raised the dividend from $0.01 to $0.25 per share and authorized another $80.0 billion in buybacks on top of $38.5 billion remaining, returning roughly $20.0 billion to shareholders in a single quarter.
Why NVIDIA and Not Microsoft
I own both. Microsoft is the customer paying the toll. Revenue grew 18.3% last quarter against NVIDIA’s 85.23%. Microsoft’s net margin sits at 36.15% against NVIDIA’s 55.60%, ROIC at 21.02% against 92.21%. Microsoft trades at a P/E of 28 against NVIDIA’s 43, and I understand the appeal of the cheaper multiple. The growth gap earns the premium. Microsoft’s stock is down 18.93% year to date while NVIDIA is up 13.84%. The market is pricing Microsoft’s capex as sin and NVIDIA’s revenue as the beneficiary. The operating numbers describe that trade.
The Real Risk
China is the risk I take seriously. NVIDIA guided Q2 FY27 to $91.0 billion with zero Data Center compute revenue from China, against $4.6 billion a year ago. Export policy could stay hostile for years. Customer concentration is real, with hyperscalers approximately 50% of Data Center. I have sat with both concerns. Guidance implies acceleration despite the China zero, and hyperscaler concentration reads as a feature when those customers are capacity constrained rather than demand constrained. The 10-Q chatter on r/investing gets loud, but the backlog is louder.
Why the Buy Button Stays Live
Analyst consensus target sits at $302.31 against a current $212.06. The earnings reaction is secondary. I am buying because every hyperscaler capex dollar for the next several quarters has an NVIDIA logo on it, and the buy button stays live until that stops being true.
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