TLDR
- Nvidia stock has surged 755% since 2022 and 171% in 2024, driven by AI spending
- Fund manager Chris Versace maintains a $175 price target despite recent earnings
- Nvidia’s gross margins are declining from 78.4% to a projected 70.6%, signaling competition concerns
- China sales have dropped to half their previous levels due to export restrictions
- Competition is increasing from AMD, Broadcom, and custom chips from tech giants like Microsoft and Amazon
Nvidia’s meteoric rise as the leader in AI chip technology may be facing headwinds as gross margins decline and competition increases across the market. The company’s stock has delivered remarkable returns, climbing 755% since 2022 and 171% in 2024 alone, making many investors wealthy in the process.
The AI spending boom has transformed Nvidia from a $27 billion company in 2023 to one with over $130 billion in annual revenue. This growth came primarily from the sale of high-performance GPUs essential for training and operating large language models.
Nvidia’s H100, H200, and new Blackwell AI chips have been in such high demand that the company has commanded premium prices. Some Hopper chips sold for up to $40,000 each, while Blackwell chips range from $30,000 to $40,000 per unit.
This pricing power helped push Nvidia’s net income to nearly $73 billion, up from less than $5 billion in 2023. The company’s data center revenue now accounts for more than 88% of total sales.
Market dominance has been clear. Semiconductor analysis firm TechInsights estimated that Nvidia held 98% of the GPUs shipped to enterprise data centers in 2022 and 2023.
However, warning signs are appearing. Nvidia’s gross margins have been steadily declining from a peak of 78.4% in Q1 2025 to 73% in the most recent quarter. Management projects margins will fall further to 70.6% in the coming quarter.
Fund manager Chris Versace, who correctly predicted Nvidia’s rally, remains cautious. While maintaining his $175 price target, he notes that margin pressures are concerning even if they might be temporary.
“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.”
Export restrictions to China impact business
Export restrictions to China have also impacted Nvidia’s business. CEO Jensen Huang acknowledged that China sales, once representing over 20% of data center revenue, “is about half of what it was before the export control.”
The competitive landscape is changing rapidly. AMD reported record data center revenue of $12.6 billion last year, with CEO Lisa Su predicting the AI-GPU market will grow 73% annually to reach $400 billion by 2027.
Other tech giants are developing their own chips. Microsoft, Meta Platforms, Amazon, and Alphabet are all creating custom AI accelerators to reduce their dependence on Nvidia’s expensive hardware.
Some analysts worry that AI hardware is facing the classic problem of supply catching up with demand. As GPU scarcity decreases, Nvidia’s extraordinary pricing power may diminish.
The DeepSeek model has also raised questions about whether less powerful and less expensive hardware might be sufficient for some AI applications. DeepSeek’s R1 model reportedly uses less costly Nvidia chips while delivering competitive performance.
Another concern is the lack of clear ROI for many AI investments. Businesses are spending heavily on AI infrastructure without well-defined plans for generating returns, which could lead to spending pullbacks.
Despite these challenges, AI adoption continues to accelerate across industries. Militaries are researching AI for battlefield applications, banks like JP Morgan Chase are using it to hedge risks, and healthcare companies are exploring AI for drug development.
Major cloud providers have dramatically increased capital expenditures to support AI growth. Microsoft, Google, and Amazon spent $192 million on infrastructure last year, up from $117 billion in 2023.
Nvidia remains well-positioned with its CUDA software platform, which helps developers maximize GPU performance and build large language models. This ecosystem creates customer loyalty that may help Nvidia weather competitive pressures.
As Versace noted, “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.”
Investors will be watching closely to see if Nvidia can reverse its margin decline and maintain its leadership position as the AI market matures and competition intensifies.
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