TLDR
- Nvidia stock has risen 755% since 2022 and 171% in 2024 due to AI spending
- Fund manager Chris Versace maintains $175 price target despite margin pressure from Blackwell chip production
- Nvidia’s gross margin is declining: from 78.4% in Q1 2025 to projected 70.6% in Q1 2026
- Competition is increasing from AMD, Huawei, and in-house chip development by major tech companies
- Despite challenges, AI market potential remains significant with PwC forecasting $15.7 trillion added to global economy by 2030
Nvidia’s stock has been on a remarkable journey since the advent of generative AI, rising 755% since 2022 and 171% in 2024 alone. The company that once focused primarily on gaming graphics has transformed into the backbone of the artificial intelligence revolution.
With its latest quarterly earnings report, however, signs of pressure are emerging. The company’s gross margins are slowly declining, prompting questions about whether Nvidia’s meteoric rise might be cooling.
Nvidia’s success stems from the AI spending frenzy kicked off by OpenAI’s ChatGPT. The company’s specialized graphics processing units (GPUs) have become essential tools for training and operating large language models.
These chips are perfectly suited for AI’s intense workloads. They perform better than traditional central processing units (CPUs) that were previously common in enterprise and cloud networks.
The numbers tell the story. Nvidia’s annual revenue has skyrocketed to over $130 billion, up 114% year-over-year from $27 billion in 2023. Meanwhile, net income has jumped to nearly $73 billion from less than $5 billion in 2023.
Demand for Nvidia’s AI chips comes from across the globe. Companies are rushing to implement AI solutions across industries. Militaries are researching battlefield applications, banks like JP Morgan Chase use it for risk management, and retailers are testing it to reduce theft and improve supply chains.
This demand hasn’t been cheap for buyers. Nvidia’s H100 chips have commanded prices up to $40,000 each, while its newer Blackwell chips sell for $30,000 to $40,000 per unit. By comparison, competitor AMD sells its Instinct MI300X AI chips for $10,000 to $15,000 each.
Yet challenges are emerging. Export restrictions have cut into Nvidia’s Chinese market. CEO Jensen Huang noted that China now represents about half of what it did before export controls were implemented. Previously, China accounted for over 20% of Nvidia’s data center sales.
Competition is also intensifying. AMD reported record data center revenue of $12.6 billion last year and predicts continued growth. AMD CEO Lisa Su forecasts the AI-GPU market will grow by an average of 73% annually to $400 billion through 2027.
There’s also competition from Broadcom and even in-house chip development by major tech companies. Microsoft, Meta Platforms, Amazon, and Alphabet are all working on their own AI chips for their data centers.
Perhaps most telling is Nvidia’s declining gross margin trend. After peaking at 78.4% in the first quarter of fiscal year 2025, margins have steadily decreased each quarter: 75.1% in Q2, 74.6% in Q3, and 73% in Q4. The company now projects margins of 70.6% for Q1 2026.
This margin compression suggests Nvidia’s pricing power may be weakening as supply begins to catch up with demand. The AI-GPU scarcity that allowed for premium pricing appears to be easing.
Chris Versace is Cautious
Fund manager Chris Versace, who correctly predicted Nvidia’s rise and invested accordingly, remains cautious. Despite the impressive earnings, he’s maintaining his $175 price target for Nvidia stock.
Versace notes that margin pressure is partly due to the ramp-up of Blackwell solutions. As production matures, management expects margins to return to the mid-70s later this year.
“What’s weighing on those margins, at least in the near term, is the continued ramp of Nvidia’s Blackwell solutions,” Versace explained. “As production matures, Nvidia’s management expects those margins will return to the mid-70s later this year.”
Some analysts worry about the sustainability of AI investments. Many businesses still lack clear plans for generating returns on their AI spending. This uncertainty mirrors previous tech bubbles, where early adoption enthusiasm outpaced practical applications.
There’s also competition from more cost-effective solutions. China-based DeepSeek has developed large language models using less powerful Nvidia chips at a fraction of the cost that major companies are spending on their AI data centers.
Despite these challenges, the overall AI market potential remains enormous. PwC estimates that AI could add $15.7 trillion to the global economy by 2030. The technology’s ability to reason, act, and evolve without human intervention gives it applications across most industries worldwide.
On January 7, 2025, Nvidia’s stock hit an all-time high of $153 per share. Since then, it has pulled back to around $125. The company has added nearly $3 trillion in market cap since the beginning of 2023.
Investment firm TechInsights estimated that Nvidia accounted for 98% of the GPUs shipped to enterprise data centers in 2022 and 2023. With data center revenue now making up more than 88% of Nvidia’s net sales, the company’s dominance in this sector is clear.
Nvidia’s CUDA software platform has been another key advantage. This toolkit helps developers maximize GPU computing potential and build large language models. Importantly, it fosters customer loyalty to the Nvidia brand.
While recent quarterly earnings beat Wall Street’s expectations, the declining gross margin trend has raised concerns. This metric may be more telling about Nvidia’s future than headline growth figures.
As Versace wisely points out, “While there is fodder for the Nvidia bulls and bears… the reality is that we are still in the early innings when it comes to AI.” The true long-term winners of the AI revolution may not be fully apparent yet.
