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NVIDIA -

Single-Year Recap

NVDA | Market Cap: $5.3T (06/04/26)
Industry:
Semiconductors
The following is an analysis of the key factors that drove financial performance over a year.

Overview of NVIDIA's 2026 Performance

NVIDIA's revenue grew 65% to $215.9B in fiscal year 2026, driven by strong demand for its data center platforms for accelerated computing and AI. The company's new Blackwell architecture was the primary driver of growth across its segments. Net income increased 65% to $120.1B for fiscal year 2026.

Profitability was impacted by U.S. government export controls on China, which led to a $4.5B charge for excess inventory of H20 products. This charge, along with a business model shift towards full-scale datacenter solutions, caused gross margin to decline to 71.1% in fiscal year 2026 from 75.0% in the prior year. The company significantly increased its investments in the AI ecosystem and returned $41.4B to shareholders through repurchases and dividends.

Revenue Performance

Growth in fiscal year 2026 was driven by the major platform shifts to accelerated computing and AI, with the Blackwell architecture fueling demand across all segments.

Compute & Networking

The Compute & Networking segment, which includes Data Center, was the primary growth engine.

  • Segment Revenue: Increased 67% to $193.5B in fiscal year 2026.
  • Data Center Computing: Revenue grew 59%, driven by demand for the Blackwell computing platform.
  • Data Center Networking: Revenue grew 142%, driven by the introduction and ramp of the NVLink compute fabric for GB200 and GB300 systems, as well as growth in Ethernet and InfiniBand platforms.

The company notes its business model is transitioning from offering Hopper HGX systems to providing Blackwell full-scale datacenter solutions.

Graphics and Other Segments

  • Graphics: Revenue increased 57% to $22.5B in fiscal year 2026, driven by sales of the Blackwell architecture.
  • Gaming: Revenue grew 41% in fiscal year 2026 due to strong Blackwell demand. However, NVIDIA expects supply constraints to be a headwind for the Gaming segment starting in the first quarter of fiscal year 2027.
  • Professional Visualization: Revenue was up 70% in fiscal year 2026, driven by demand for Blackwell and the launch of the new DGX Spark.
  • Automotive: Revenue increased 39% in fiscal year 2026 from the continued adoption of NVIDIA's self-driving platforms.

U.S. Export Controls on China

U.S. government regulations targeting exports to China had a significant financial impact in fiscal year 2026.

  • In April 2025, the U.S. government informed NVIDIA that a license would be required for exports of its H20 product to China.
  • This requirement caused demand for H20 to diminish, resulting in a $4.5B charge in the first quarter of fiscal year 2026 for excess inventory and purchase obligations.
  • In August 2025, NVIDIA was granted licenses to ship certain H20 products to specific China-based customers, generating approximately $60M in revenue under those licenses in fiscal year 2026.
  • In February 2026, a license was granted for shipping small amounts of H200 products to certain Chinese customers, but these are subject to a U.S. inspection process and a 25% tariff upon importation into the U.S. The company has not generated any revenue under this program to date.

As a result of these restrictions, revenue from customers headquartered outside the United States fell to 31% of total revenue in fiscal year 2026, down from 41% in fiscal year 2025.

Profitability and Cost Drivers

Gross Margin

Gross margin decreased by 3.9 percentage points to 71.1% in fiscal year 2026. The company attributes this decline to two main factors:

  • The business model transition towards full-scale Blackwell datacenter solutions.
  • The $4.5B charge related to H20 excess inventory and purchase obligations.

Net inventory provisions had an unfavorable impact of 2.6% on gross margin in fiscal year 2026, compared to an unfavorable impact of 2.3% in fiscal year 2025.

Operating Expenses

Total operating expenses increased 41% to $23.1B in fiscal year 2026.

  • Research and Development: R&D expenses grew 43% to $18.5B, driven by a 29% increase in compensation and benefits from employee growth and a 79% increase in compute and infrastructure costs.
  • Sales, General and Administrative: SG&A expenses rose 31% to $4.6B, primarily due to higher compensation-related costs.

Other Income and Taxes

  • Other Income: Total other income, net, increased to $11.1B in fiscal year 2026 from $2.6B in the prior year. The change was primarily driven by unrealized gains on non-marketable and publicly-held equity securities, including gains from an investment in Intel's common stock.
  • Income Taxes: The effective tax rate increased to 15.1% in fiscal year 2026 from 13.3% in fiscal year 2025. The company states this was mainly due to a lower percentage of tax benefits relative to the increase in pre-tax income.

Strategic Investments and Capital Allocation

NVIDIA made significant investments to support its technology roadmap and the broader AI ecosystem.

  • Ecosystem Investments: The company invested $17.5B in private companies and infrastructure funds in fiscal year 2026, primarily to support early-stage startups and AI model makers that purchase NVIDIA products. It also provided $3.5B in land, power, and shell guarantees to early-stage companies.
  • Capital Expenditures: Capex increased to $6.1B in fiscal year 2026 from $3.4B in the prior year. The company expects capex to increase again in fiscal year 2027 to support future growth.
  • Shareholder Returns: NVIDIA returned a total of $41.4B to shareholders in fiscal year 2026, consisting of $40.4B in share repurchases and $974M in dividends. The board approved an additional $60.0B share repurchase authorization in August 2025.

Business Risks and Dependencies

  • Customer Infrastructure: NVIDIA states that the availability of data centers, energy, and capital for its customers is crucial and that shortages could impact future revenue.
  • Customer Concentration: Revenue is concentrated among a few large customers. In fiscal year 2026, one direct customer accounted for 22% of total revenue and another for 14%, both primarily in the Compute & Networking segment. The company also estimates that one indirect AI research and deployment company contributed a meaningful amount of revenue through its purchases from NVIDIA's customers.
  • Competition: The company notes that the rise of high-quality open-source foundation models could reduce demand for its products if those models are deployed on competitors' platforms.
  • Supply Chain: While currently concentrated in Asia, NVIDIA is expanding its supply chain into the U.S. and Latin America to add resiliency and meet growing demand.
Based primarily on 10-K filed on 2026-02-25 | View source on EDGAR