Key insights
- Nvidia's gross margins may decline from a 2024 peak of 79% towards the low-60% range, similar to Broadcom's trajectory, due to factors like reduced China sales, competition in AI inference, and potential erosion of its CUDA moat. This margin compression could necessitate significant revenue growth to maintain gross profit levels. Additionally, concerns regarding accounting practices in Singapore and antitrust issues are noted.
Without direct sales to China, support for neoclouds, and Jensen’s dealmaking, NVIDIA’s gross margins can continue to compress from the 79% peak in 2024 toward low-60% range. This is the level where Broadcom’s margins are heading as well, as inference competition heats up. Chip margins above 70% aren’t sustainable over long term. The CUDA moat will also become less significant as AI rapidly advances in its ability to write and optimize code, reducing switching costs. A 15-percentage-point margin decline would require roughly 25% revenue growth just to maintain the same level of gross profit. The revenue growth will be there; just take more of it to sustain profits. All while accounting for Singapore is questioned and antitrust issues are raised. Complicated story now, even if GARP is there.