The AI Revolution: Is Nvidia’s Stock at a Crossroads?

From Boosted Growth to Possible Decline

Roughly 30 years ago, the rise of the internet changed the corporate landscape, leading to unprecedented growth. It took several years for this technology to reach its full potential, but its positive impact on businesses has been undeniable. Fast forward to today, and Wall Street seems to be hoping for another breakthrough. Over the past two years, artificial intelligence (AI) appears to fulfill that desire.

Image source: Getty Images.

AI technology can learn and adapt independently, which opens up new opportunities in almost every industry. It seems clear that numerous companies could benefit from this vast AI ecosystem. However, no firm has capitalized as much as Nvidia (NASDAQ: NVDA). Starting in 2023, Nvidia’s market value surged from $360 billion to over $3.6 trillion, making it the largest publicly traded company at the moment.

Nvidia’s Impressive Growth Story

Less than two years ago, Nvidia reported $27 billion in sales for fiscal 2023, which concludes in late January. Now, in fiscal 2025, it’s on track for around $129 billion in revenue, while projections for next year are nearly $192 billion. This extraordinary growth stems from the demand for Nvidia’s AI graphics processing units (GPUs), essential for high-performance data centers. Analysts from TechInsights indicated that Nvidia controlled 98% of GPU shipments to data centers in both 2022 and 2023. Clearly, their H100 GPU, also known as the “Hopper,” and its successor, the Blackwell GPU, are finding eager buyers.

Nvidia has also leveraged supply and demand to its advantage. With significant backlogs for the Hopper and upcoming Blackwell chip, the company has managed to raise prices considerably. The price range of $30,000 to $40,000 for the Hopper represents a remarkable 100% to 300% premium compared to Advanced Micro Devices (NASDAQ: AMD)’s MI300X chips designed for AI-accelerated data centers.

Acknowledgment must also go to Nvidia’s CUDA software platform, which enables developers to maximize the efficiency of their Nvidia GPUs, including the creation of large language models. This strong platform has fostered loyalty among Nvidia’s customers.

Concerns Emerge Amid Solid Results

On the surface, Nvidia’s latest results seem impressive. In its third-quarter report, ending October 27, sales soared 94% year-over-year to reach $35.08 billion, while net income rose 109% to $19.3 billion. These figures surpassed Wall Street’s expectations. However, one critical metric raises concerns about the sustainability of Nvidia’s stock growth.

Nvidia initially reported a strong gross margin of 78.4% in its first quarter of 2025. This excellent margin resulted from the scarcity of AI GPUs and strong pricing strategies. However, recent numbers suggest a trend reversal: the company recorded gross margins of 75.1% in Q2 and 74.6% in Q3 2025. The forecast for the fiscal fourth quarter predicts a gross margin of 73% to 73.5%. Although these figures remain healthier than pre-AI levels, the declining trend indicates that the AI-GPU shortage may be lessening and competition may be increasing.

NVDA Gross Profit Margin (Quarterly) data by YCharts. The above chart isn’t yet reflective of Nvidia’s fiscal third-quarter gross margin of 74.6%.

While many are focused externally on competition from companies like AMD, which is ramping up production of its MI300X AI-GPUs and plan to launch the next-gen MI325X, internal competition poses a different threat. Several key customers, known as the “Magnificent Seven,” are developing their own AI-GPUs for in-house data centers. Even if these alternatives may not match Nvidia’s performance, their lower price and easier access could sway businesses toward them.

Lessons from the Past

The declining gross margin hinted at a market peak for Nvidia. History demonstrates how industry trends often play out. The internet reshaped the business environment, yet it took time for companies to adapt effectively. Nearly every major technological innovation over the past 30 years has faced a bubble-burst scenario during its adoption phase.

This pattern indicates investors sometimes over-estimate how quickly new technologies will be embraced by consumers or businesses. As revolutionary as AI may become, it is likely to take time for effective implementation. Such delayed integration often results in lowered expectations.

Potential Opportunities Ahead

Do you think you’ve missed investment opportunities in top-performing stocks? Consider this.

Occasionally, our analysts recommend a “Double Down” stock—companies believed to be on the verge of growth. If you’re concerned you’ve lost your chance, now could be an ideal time to invest. Here’s what the numbers show:

• Nvidia: If you invested $1,000 when we doubled down in 2009, you’d have $368,053!
• Apple: If you invested $1,000 in 2008, you’d have $43,533!
• Netflix: If you invested $1,000 in 2004, you’d have $484,170!

Presently, we are issuing “Double Down” alerts for three promising companies, and this may be a rare opportunity.

See 3 “Double Down” stocks »

*Stock Advisor returns as of November 18, 2024

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.