Have ever calmed a child down by putting on their favorite movie?
About a decade ago, neuroscientists deployed sophisticated mathematical tools to decode how our brains respond to stories. And recently, they’ve found biological evidence suggesting our brains are constantly searching for familiar “beats” when faced with the unfamiliar.
In other words, our brains are hardwired for stories.
If you give us a pile of loosely connected facts, our brains will edit them into a beginning, a middle, and an ending, complete with heroes, villains, and obstacles to overcome.
This week, Nvidia (NVDA) earnings told a story that pacified Wall Street. Let’s call it the “three-quel,” as Nvidia has been the earnings story to calm the Street’s nerves for three years running now.
Better yet, Nvidia earnings are the plot summary for the entire AI economy, and every big Nvidia release is a blockbuster for the AI Boom.
This week, we break down Nvidia’s latest blockbuster earnings and what they tell us about the health of the broader AI trade. Click the video below to watch it now:
Nvidia’s Story Follows the Money
If you understand the story Nvidia’s earnings told the market, then you know where the next leg of AI money is flowing. However, over the past four months, most investors have been telling themselves a very different story from Nvidia’s – they’ve been telling a story about deceleration.
Deceleration is where the law of large numbers finally catches up to the biggest chipmaker on the planet. If you’ve seen the report, then you know that story is nothing more than myth. And to put that myth to bed, Nvidia gave guidance, not for just the next quarter, but for its entire next fiscal year. The market has been pricing Nvidia and the AI stocks that orbit it for a slowdown. But there’s no slowdown in sight.
Typically, when Nvidia reports, its stock runs up into earnings and then sells off on the already-priced-to-perfection expectations. This report is different – NVDA stock surged 4% in the after hours Wednesday, and is up 8% Thursday as I write this.
The main reason is due to Chief Financial Officer Colette Kress telling shareholders that next year’s growth will only accelerate further, with a 70% sales increase in fiscal 2028 vs. the 45% the Street was modeling. A 70% growth rate puts Nvidia’s annual revenues around $680 billion, as opposed to the $580 billion a 45% increase would yield.
In other words, Wall Street underestimated Nvidia by about 100 billion dollars.
Dismantling the Deceleration Story
The bearish case against Nvidia has never really been about demand. It has been about math.
Revenue growth accelerated from 56% to 62% to 73% to 85% to 106% across recent quarters, and a rate that high cannot climb forever. Next quarter’s guide, at roughly 90%, already signals the deceleration everyone expected. Wall Street’s models had that deceleration continuing in a straight line down toward the mid-20s within a few years.
Nvidia just interrupted that line. Instead of a steady slide, the new trajectory looks more like 90%, then a mid-70s range, then a stabilization near 70% annual growth – an extraordinary figure for a company already producing more than $130 billion in quarterly revenue. Law of large numbers has not been repealed, yet Nvidia’s own guidance argues its ceiling sits far higher than the market assumed, with 2029 or 2030 as the more realistic point where growth genuinely slows.
That $110 billion gap between what the market expected and what Nvidia just guided translates into purchase orders. Basically, hyperscalers order servers from Nvidia, and Nvidia in turn has to buy memory, networking gear, and optical components to build them. The tightest bottlenecks in that supply chain are memory and networking, which is why Micron Technology, Inc. (MU), SanDisk Corp. (SNDK), Seagate Technology Holdings plc (STX), Western Digital Corp. (WDC), Coherent Corp. (COHR) and Credo Technology Group Holding Ltd. (CRDO) all traded higher alongside Nvidia in the after-hours session, some by roughly the same 4% margin.
Valuation adds another layer to the case. Nvidia currently trades near 18.5 times forward earnings, a five-year low for the multiple, a level that only makes sense if the market genuinely expects growth to collapse.
Remove that assumption and the multiple has room to reprice back toward its five-year average near 35 times, which alone could imply a doubling in the stock even before accounting for higher earnings estimates.
If we run that same exercise on Micron and SanDisk, both trading at single-digit forward multiples, we see the upside math compound further down the supply chain.
The Trade Behind the Story
For four months, AI-focused benchmarks sat flat. The Nasdaq-100, semiconductor indices, and AI-themed exchange-traded funds all stalled between early May and late August while investors waited to see whether the deceleration story would prove true.
Nvidia’s earnings blockbuster functions as the catalyst that breaks that stall, because it replaces an unresolved narrative with a resolved one: demand for AI infrastructure remains greater than supply, spending is not slowing, and the companies building the picks and shovels for this buildout are the ones capturing the next leg of the move.
That is the story Nvidia told the market this week, and the market believed it hook, line, and sinker. We break down the full read on the quarter, the supply-chain winners and the valuation case in this week’s episode. It’s worth a watch for anyone deciding whether to stay in this trade or add to it before the rest of Wall Street finishes updating its models.
Watch the latest episode of Being Exponential here.
The post Nvidia Sold the Market a New Story, and It Bought It. Here’s Why. appeared first on InvestorPlace.
