You gain 1 life. Target creature gets -X/-X until end of turn, where X is the amount of life you gained this turn.
Nightmare’s Thirst counts how much life you’ve gained this turn, not how much your life total changed. For example, if you’ve gained 5 life and lost 8 before Nightmare’s Thirst resolves, Nightmare’s Thirst has you gain 1 more life, then it gives the target creature -6/-6.
If the target creature is an illegal target when Nightmare’s Thirst tries to resolve, the spell doesn’t resolve. You won’t gain 1 life.
