Nvidia has delivered exceptional returns to investors over the past several years, with its stock surging more than 1,400% in the last five years. This impressive performance is largely attributed to the company’s leading role in the artificial intelligence (AI) revolution, which has fueled explosive earnings growth. Quarterly revenues have consistently reached new records, often growing at double or triple-digit rates.
However, recent challenges such as regulatory uncertainties, import tariffs, and restrictions on AI chip exports to China created headwinds for the stock. By April, Nvidia’s share price had declined by nearly 29% from the beginning of the year. Since then, the stock has rebounded alongside broader market optimism, supported by strong ongoing demand from major tech customers and a more favorable outlook on trade policies.
Looking ahead, there is compelling reason to believe that Nvidia’s positive trajectory may continue into 2025. One key metric in particular—the company’s gross margin—suggests the potential for further stock appreciation.
What’s Driving Nvidia’s Growth?
Nvidia initially gained recognition for its powerful graphics processing units (GPUs), which were primarily used in the gaming industry. Over time, the company identified broader applications for its technology, especially in the field of artificial intelligence.
GPUs are exceptionally well-suited for complex AI workloads, including the training and inference stages of large language models (LLMs). These capabilities enable AI systems to process information, solve problems, and generate human-like responses. By building a comprehensive ecosystem of hardware, software, and services, Nvidia has established itself as an essential infrastructure provider in the AI space.
This strategic positioning has translated into extraordinary financial results. In its most recent fiscal year, Nvidia’s revenue increased by 114% to $130 billion. This growth momentum continued into the first quarter of fiscal 2026, with revenue rising 69% year-over-year to $44 billion. A significant portion of this growth came from inference—the phase in which AI models apply learned information to answer questions and perform tasks.
Major Customers Continue to Invest
Demand from leading technology firms remains robust. Companies like Meta Platforms and Alphabet have repeatedly emphasized that AI is a top strategic priority. Both have announced plans to sustain—or even increase—capital expenditures related to artificial intelligence, including investments in Nvidia’s GPUs and related technologies.
This sustained demand from cloud service providers, enterprises, and AI startups reinforces the strength of Nvidia’s market position. It also indicates that the company’s growth story is far from over.
The One Number That Could Drive NVDA Higher in 2025
Amidst all the positive trends, one financial metric stands out: gross margin. This figure represents the percentage of revenue that exceeds the cost of goods sold and is a strong indicator of a company’s pricing power, efficiency, and profitability.
Nvidia has consistently maintained gross margins above 70% in recent quarters, occasionally reaching the mid-70% range. Earlier this year, management guided for a temporary dip into the low 70s due to the complex rollout of its new Blackwell architecture, which involves higher initial costs.
True to expectations, first-quarter non-GAAP gross margin landed at 71.3%, excluding a one-time $1 billion charge related to China export restrictions. Including that charge, GAAP gross margin was approximately 60%.
Most importantly, Nvidia expects margins to expand throughout the year. Guidance for the second quarter points to GAAP gross margin of 71.8% and non-GAAP gross margin of 72%. The company projects that margins will reach the mid-70% range by late 2025 as Blackwell gains scale and efficiency improves.
High gross margins allow Nvidia to reinvest in innovation, sustain competitive advantages, and deliver strong bottom-line results—all of which support shareholder value. 👉 Explore more investment strategies
Potential Challenges and Opportunities
Despite the encouraging outlook, investors should remain aware of certain risks. Ongoing U.S. restrictions on semiconductor exports to China could impact revenue in the region. Any escalation in trade tensions or new regulatory hurdles may create near-term volatility.
That said, the global appetite for AI computing appears insatiable. Demand from other geographic markets and industry verticals is likely to help offset any regional weaknesses. Moreover, Nvidia’s continuous innovation in AI hardware and software strengthens its ability to navigate evolving market conditions.
Frequently Asked Questions
What is Nvidia’s core business?
Nvidia designs and manufactures graphics processing units (GPUs) that are widely used in gaming, professional visualization, data centers, and artificial intelligence. Its chips are essential for training and running advanced AI models.
Why are gross margins important for Nvidia?
Gross margin reflects how efficiently Nvidia converts revenue into profit after accounting for production costs. High margins indicate strong pricing power, cost control, and the ability to fund future research and development.
How does the Blackwell architecture affect margins?
New product launches often involve higher initial costs, which can temporarily pressure margins. However, as production scales and efficiencies improve, margins typically recover and expand—as anticipated with Blackwell.
What are the main risks to Nvidia’s stock performance?
Key risks include increased competition, changes in trade policies, export controls, a slowdown in AI investment, or broader market downturns that affect high-growth technology stocks.
Is Nvidia a good long-term investment?
Many analysts remain optimistic about Nvidia’s long-term prospects due to the expanding applications of AI across industries, its technological leadership, and its strong financial performance.
Where can I learn more about investing in tech stocks?
It’s important to conduct thorough research, review quarterly earnings reports, and consider industry trends. 👉 View real-time market tools
Conclusion
Nvidia’s exceptional profitability, as measured by its gross margin, serves as a powerful indicator of the company’s financial health and competitive moat. With expectations of expanding margins throughout 2025, driven by the full-scale deployment of the Blackwell platform, Nvidia is well-positioned to continue its growth trajectory.
While external challenges remain, the underlying demand for AI capabilities suggests that Nvidia’s products and services will stay in high demand. For these reasons, Nvidia stock appears poised to perform well in the coming year.