In the wake of a stellar quarter for Nvidia Corp., boasting over 400% growth in data-center revenue and earnings, one number stands tall as a testament to the company’s dominance.
Impressive Gross Margin Growth
A standout achievement in Nvidia’s stunning fiscal fourth quarter was its 76% GAAP gross margin, a significant rise from the 66% seen a year prior. Projections indicate that this margin will hold steady for the current quarter.
Semiconductor Industry Rankings
Nvidia’s remarkable gross margins place it as the second-highest in the semiconductor industry, trailing only Arm Holdings PLC. Arm boasts margins of around 93% in the December quarter.
Factors at Play
While Nvidia incurs expenses related to inventory and supply-chain distribution, unlike Arm, its margins still shine brightly within the chip sector. By comparison, Intel Corp. reported a gross profit margin of 46%, while Advanced Micro Devices Inc. reported a margin of 40% in the fourth quarter.
Unique Product Offerings
Nvidia’s ability to command high prices for its products stems from their complexity and insatiable demand. Chief Executive Jensen Huang highlighted the intricacy of Nvidia’s chips, particularly emphasizing the 35,000 parts and 70-pound weight of the Nvidia Hopper GPU.
Unparalleled Innovation
In closing, Nvidia’s margins remain elevated due to the unparalleled quality and complexity of their offerings. With a reputation for building AI supercomputers, Nvidia continues to lead the charge in the semiconductor industry.
The High Cost of an H100 GPU
The average cost of an H100 GPU is about $30,000.
Margin Forecast and Competition
Nvidia noted that its margins for the latest quarter and the current one could represent a peak due to favorable component costs in the supply chain in the past few months. However, Chief Financial Officer Colette Kress stated that Nvidia had “visibility” into a mid-70% gross margin for the balance of this fiscal year. This level would take margins back to where they were before the recent high-water mark.
Even if Nvidia’s margins decline slightly from their current position, they are anticipated to remain above most peers in the sector.
Product Expansion and Challenges
Nvidia will be ramping up its next-generation GPU product, called Blackwell, but the company is currently supply-constrained. This limitation could put pressure on Nvidia’s margins if additional spending on components in tight supply is necessary or if demand cannot be fully met.
Investor Sentiment and Market Positioning
Wall Street has shown concerns regarding the demand for Nvidia’s products, with investors closely watching for any signs of a slowdown. Although the company has highlighted future growth potential, the margin figures subtly underscore Nvidia’s strong position and help alleviate investor doubt.
Nvidia has predominantly dominated the market for AI hardware, but upcoming competition looms. Nevertheless, the record margins serve as a clear indication of sustained demand, allowing Nvidia to maintain premium prices for its chips and systems due to their value proposition for customers.
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