Episode summary
What Nvidia's 75% Gross Margins Quietly Reveal About AI
Summary
Nvidia’s latest quarter is presented as strong on the surface: revenue hit $96.2 billion, up 107% year over year, and data center still accounted for $89 billion of that total. Dylan Grice argues the more important signal is not the headline growth but what the numbers say about the next phase of the AI buildout.
He focuses on gross margin of 75%, calling it abnormally high and a sign of pricing power. But he says the margin story is starting to change. Nvidia reportedly cannot pass all memory cost increases through to customers, and it now expects lower gross margins ahead, which he reads as evidence that competition is rising, customers are becoming less concentrated in the Mag 7, and the business is maturing.
Grice also highlights that demand is broadening beyond hyperscalers. He says sovereign buyers, regional neo clouds, enterprise, edge, and air-gapped data centers now represent half of data center business, which suggests the AI buildout is still expanding. At the same time, supply constraints across memory and CPUs show the ecosystem is still retooling to meet demand.
Key takeaways
- Dylan Grice says Nvidia’s 75% gross margin signals strong pricing power, but also attracts competitors trying to chip away at it.
- He says Nvidia’s demand is broadening beyond hyperscalers, with sovereigns, neo clouds, enterprise, edge, and air-gapped data centers now half of data center business.
- Grice argues Nvidia’s inability to pass all memory cost increases to customers is the clearest sign yet that margins are peaking.
- He says lower future gross margins would suggest the AI buildout is maturing and the easiest profits are being harvested first.
- The transcript says Nvidia’s revenue reached $96.2 billion, with $89 billion from data center, underscoring how concentrated the business still is.
Notable quotes
“Revenue hit 96.2 billion, up 107% year-over-year, up about 18% from prior quarter”
“Of their 96 billion in revenue, 89 billion of that is from data center”
“Nvidia has 75% gross margins, which are abnormally high”
“Demand's broadening but beyond the hyperscalers, you know, sovereign, different countries, regional neo clouds, enterprise, edge, air-gapped data centers”
“This is the very first time that I've seen them not be able to pass. They cannot pass all of that to their customers”
How the episode opens
Good morning. There's Don Giovanni with Behind the Markets, happy Friday. Today's Friday, August 28th.
TGIF. Boy, oh boy, I mean that today. It's been a busy week.
Anyway, you've heard about Nvidia's great earnings. Today, I want to talk about a few things that I think a lot of folks missed in discussing them yesterday. The earnings came out Wednesday.
Everybody talked about them yesterday, but today I want to talk about a few things that some people missed that I think are very, very important. So, by now you know that Nvidia had blowout earnings. Revenue hit 96.2 billion, up 107% year-over-year, up about 18% from prior quarter, but about 107% year-over-year.
Data center is still the entire story, basically. Of their 96 billion in revenue, 89 billion of that is from data center. So, you know, it's still a data center company, basically, when you look at it.
So, very, very, very important. Also, pays to keep an eye on data center buildout and how that could affect Nvidia over time. And of course, the thing that I like to look at is gross margins.
Their gross margins came in at 75% and this is very, very, very important. Ladies and gentlemen, pro tip, when you're looking at a company and you're analyzing a company, whether you want to buy the stock or a private company or making an investment in, let's say your buddy opens a restaurant and they're saying, "Hey, I want you to back this. Or your friend's son has an idea to start a company that does this or that, look at their gross margins, okay?
Let's say a company sells something for $100 and it costs $40 to make it, that's a 60% gross margin. Nvidia has 75% gross margins, which are abnormally high.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- nvidia gross margins
- ai competition
- memory price increases
- ai demand broadening
- supply constraints
Companies and tickers mentioned
- NVDA
- Nvidia
Watch the episode
Watch “What Nvidia's 75% Gross Margins Quietly Reveal About AI” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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