Have we seen peak pricing power for Nvidia chips?
Nvidia reported fiscal fourth-quarter results that comfortably topped Wall Street expectations on both revenue and earnings. Shares initially jumped in after-hours trading, but that enthusiasm faded, and the stock was lower Thursday. The pullback may emanate from comments made by CFO Colette Kress during the company’s earnings call regarding inventory levels. For several years, demand for Nvidia’s most advanced AI chips has exceeded supply. The company has struggled to produce enough to satisfy hyperscale customers such as Microsoft, Amazon, Meta, and Alphabet. That imbalance has enabled Nvidia to raise prices and expand gross margins. Kress said inventory rose 8% quarter over quarter and that Nvidia now has “inventory and supply commitments in place to address future demand, including shipments, extending into calendar 2027.” Although improved visibility into future business is typically viewed as a positive, investors may be concerned that a more balanced supply-demand environment could pressure Nvidia’s ability to sustain elevated margins. Non-GAAP gross margin came in at 75.2% for the quarter. Nvidia projects gross margin of 74.5% to 75.5% next quarter and “in the mid-70s” for the full year. While near-term margins appear stable, an analyst from Melius Research asked CEO Jensen Huang about the durability of those levels beyond 2027 on the call. Huang responded, “If we could deliver generational performance per watt that exceeds dramatically what Moore’s Law can do — if we can deliver performance per dollar dramatically more than the cost of our systems — then we can continue to sustain our gross margins.” For now, investors appear worried that Nvidia’s peak pricing power in AI chips may already be behind it. The broader semiconductor space is also under pressure, with the PHLX Semiconductor Index down 3.5% on the day.
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