Nvidia reported fourth-quarter results that comfortably beat Wall Street expectations for both sales and earnings. The stock initially soared in after-hours trading, but that enthusiasm waned and shares fell on Thursday. The pullback may have stemmed from comments made by CFO Colette Kress about inventory levels during the company’s earnings call. In recent years, demand for Nvidia’s cutting-edge AI chips has outstripped supply. The company has struggled to produce enough volumes to satisfy hyperscale customers such as Microsoft, Amazon, Meta, and Alphabet. This imbalance allowed Nvidia to raise prices and expand gross margins. Kress said inventories increased 8% quarter over quarter, and Nvidia now has “inventory and supply commitments in place to meet future demand, including shipments through calendar 2027.” While the improved outlook for future business is generally viewed as positive, investors may be concerned that a more balanced supply and demand environment could put pressure on NVIDIA’s ability to maintain high profit margins. Non-GAAP gross margin for the quarter was 75.2%. Nvidia expects gross profit margins to be between 74.5% and 75.5% next quarter, and “in the mid-70s” for the full year. While near-term profit margins appear stable, analysts at Melius Research asked CEO Jensen Huang on a conference call whether they would persist beyond 2027. Huang answered, “If we can achieve generational performance per watt that dramatically exceeds what Moore’s Law can achieve, which means performance per dollar that significantly exceeds the cost of the system, then we can continue to maintain gross margins.” For now, investors appear concerned that Nvidia’s biggest pricing power in AI chips is already gone. The broader semiconductor sector was also under pressure, with the PHLX Semiconductor Index down 3.5% on the day.
