Nvidia's bullish outlook: What it means for Mag 7, Indian IT and FII flows

As Nvidia Corp.'s earnings temporarily eased concerns of a bubble in artificial intelligence (AI) stocks, analysts questioned the long-term sustainability, with key concerns around the AI ecosystem still unanswered. Analysts also noted that the impact on Indian technology (IT) stocks will be limited, if any.

 

Nvidia projected fourth-quarter revenue of $63.7-66.3 billion, topping the $61.98 billion average analyst estimate, according to Bloomberg. The company also expects an adjusted gross margin of 75 per cent, above expectations of 74.6 per cent.

 

For the third (September) quarter, Nvidia reported revenue of $57.01 billion, up 62 per cent year-on-year (Y-o-Y), beating the $55.19 billion estimate. Data-centre revenue rose 66 per cent to $51.22 billion, while compute revenue climbed 56 per cent to $43.03 billion. Networking revenue surged to $8.19 billion from $3.13 billion a year earlier. All these key metrics surpassed estimates.

   

Morgan Stanley said it expected something of a breakout quarter, and in that context, the numbers are impressive but aren't surprising following a bullish roadshow and flagship GTC presentation. However, the primary investor concerns around the AI ecosystem -- financing, returns on investment and related issues -- are questions that Nvidia is not in a position to fully address, it noted.

AI bubble debate

The best result in the last four quarters and a revenue forecast beat hints at a steady, if not accelerating AI build, analysts at CLSA said in a note. "We think persistent Al doomerism has reached a fever pitch and ignores the ground realities," the brokerage said.

 

Nvidia's steady momentum should answer Al doomerism, which ignores the virality of Al use cases, rising token consumption, faster GPUs and other triggers, it added. The analysts think that Nvidia's Q3 results and Q4 guidance clear the road for a meaningful rerating.

 

However, with Nvidia holding more than 90 per cent market share, Sandip Agarwal, fund manager at Sowilo Investment Managers, said the company is able to maintain “monopoly pricing.” Once competition emerges, margins will fall sharply. What looks like a reasonable price-earnings ratio today could become very unreasonable as margins compress, he said. 

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Impact on Mag 7

The Magnificent 7 face two key trends, according to Bhavik Joshi, Business Head, INVasset PMS. Hyperscalers remain in a necessary capex race as AI tools enter full commercial use, and the market is becoming more selective, with earnings for several AI-focused names still outpacing their price gains despite pockets of stretched valuations, Joshi said.

 

Agarwal said that valuations for the Mag 7 are elevated but not in bubble territory. “A 20-30 per cent correction is possible, but I don’t think there is a bubble,” he said.

Spill off on Indian IT? 

Agarwal said Nvidia’s results are unlikely to have any impact on Indian IT stocks, noting "absolutely no direct or indirect link."

 

Meanwhile, Joshi noted that Indian IT companies have already repositioned their offerings toward generative-AI enablement, cloud optimisation, and model-integration services. "Nvidia’s strong demand signals a sustained global shift toward AI-first architectures, but Indian IT will benefit more from downstream enterprise adoption than from hyperscaler strength alone."

On FII flows

The concentration of global liquidity toward AI-linked markets is unlikely to reverse, but it also doesn’t preclude India from attracting structural inflows, Joshi noted. "What may happen instead is a more bifurcated pattern: fast money continues to chase US tech momentum, while strategic money keeps allocating to India’s multi-year growth story."

 

Agarwal said that the slowdown has little to do with global investors chasing AI opportunities abroad. Instead, he said inflows are being held back by the pending US-India trade deal, and should resume once the agreement is finalised.