Nvidia Beat Earnings, Even as Bubble Concerns Mount. Should Investors Be Worried?

If you're still concerned that the bubble's going to pop in the artificial intelligence (AI) arena, you've not looked at Nvidia's (NASDAQ: NVDA) most recent quarterly earnings. The leading semiconductor company's report for its fiscal 2026 third quarter landed on Wednesday and gave shareholders plenty of reasons to celebrate.

Here are some highlights from the earnings report, along with a look at what some of the key numbers mean for Nvidia moving forward.

Nvidia by the numbers

The chipmaker set another company record by reporting $57 billion in sales in its fiscal third quarter, ended Oct. 26. Sales were up an incredible 62% from a year ago, and were 22% higher than the previous quarter.

Operating expenses were only $5.84 billion thanks to the substantial premium that Nvidia receives from its massive and popular data center graphics processing units (GPUs). That left Nvidia with a net income of $31.91 billion, up 65% from the same period in the prior year, and earnings per share of $1.30, which is up 67% from the same period in the prior year.

Data center sales were the biggest driver of Nvidia profits, reaching $51.2 billion -- an increase of 25% from the previous quarter and 66% higher than a year ago.

And remember, Nvidia is doing all of this without making any sales in China. China accounted for $17 billion in Nvidia's revenue in its previous fiscal year, or approximately 13% of the company's total revenue. However, Nvidia has been shut out of China this year -- first due to export restrictions imposed by Washington that prevented it from sending GPUs to China, and then by a ban imposed by Beijing, which cited security and privacy concerns.

"While we were disappointed in the current state that prevents us from shipping more competitive data center compute products to China, we are committed to continued engagement with the U.S. and China governments," Chief Financial Officer Colette Kress said. "And will continue to advocate for America's ability to compete around the world. To establish a sustainable leadership and position in AI computing, America must win the support of every developer, and be the platform of choice for every commercial business including those in China."

Image source: Nvidia.

The $500 billion issue

CEO Jensen Huang made headlines last month when he announced that Nvidia had more than $500 billion in orders for Blackwell and Rubin GPUs through 2026. And while the company later clarified that 30% of those sales had already shipped, leaving $350 billion in revenue still to be realized, analysts on Wednesday's earnings call wanted to know if the number would still hold up.

Spoiler alert: It does, particularly as the industry seeks greater compute power for accelerated computing, agentic applications, and AI models -- areas that Huang asserts are "undergoing three massive platform shifts at once."

"The transition to accelerated computing is foundational and necessary. ... The transition to generative AI is transformational, and necessary [for] supercharging existing applications and business models. And the transition to agentic and physical AI will be revolutionary, giving rise to new applications, companies, products, [and] services," Huang said.

This is why Nvidia says that instead of an AI bubble, the company sees what it calls a "virtuous cycle" of AI spending, with Nvidia in the center of it. Kress said that the company is on track for $500 billion in sales -- and that number could increase.

Should investors worry about an AI bubble?

Perhaps with some companies. There are many that are working on new projects, with varied levels of success. If you're investing in SoundHound AI, BigBear.ai, or C3.ai, you've got plenty of reasons to be worried that slowing revenue and soaring valuations could cause your bubble to pop.

But that's not the case with Nvidia and its so-called virtuous cycle. AI infrastructure is projected to be a $4 trillion opportunity by the end of the decade. Don't be surprised when an oversized portion of that spending winds up with Nvidia.

With its incredible profits, Nvidia may soon generate as much as $500 billion in free cash flow within the next few years, allowing it to continue investing in leading AI companies, creating more powerful GPUs, and leading the development of artificial intelligence globally.

So yes, Nvidia is a buy in my book. It's the biggest company in the world, achieving a $5 trillion market capitalization this fall. And while that valuation slipped in recent weeks, I fully expect Nvidia to return to those lofty heights.

Patrick Sanders has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.