The best day may be in the rearview mirror of the face of the Artificial Intelligence (AI) revolution.
About 30 years ago, the advent of the Internet and its mainstream spread began to change the world of business forever. This transformation didn’t happen overnight, but investors were waiting quite a bit for the next game-changing innovation to come and strengthen America’s long-term growth outlook. After a massive wait, it appears that artificial intelligence (AI) has answered the phone.
Software and systems are empowered by AI to make decisions, reasons, and evolve without the help of human intervention. In use cases in most industries around the world, it is probably not surprising that PWC analysts are projecting $15.7 trillion in profits from AI to the global economy by 2030.
In the early stages of the AI revolution, no public company had more corner-angled than Nvidia. (NVDA) 2.87%)). The company’s Hopper (H100) and Blackwell Graphics Processing Units (GPUs) have become standard for high-metering enterprise data centers responsible for training large-scale language models and running generation AI solutions.
However, following the release of its fourth quarter 2025 operating results after the February 26 closure bell, due to expectations of high growth already raised by Nvidia’s market capitalization of nearly $3.2 trillion, There are three very specific reasons why Nvidia stocks are overwhelmed.
Image source: Getty Images.
Abate the ai-gpu shortage
No chip companies are particularly close to matching the computing speed of Nvidia’s successor Blackwell chips to provide credit if credit is required.
However, the company also benefits greatly from the rarity of AI-GPUs. Nvidia’s overwhelming demand for hardware helped us book orders in advance due to limited supply, and charged a premium price for AI-GPUs. Advanced microdevice had netted in the neighborhood between $10,000 and $15,000 for the instinct MI300X AI-Accelerating chip in early 2024, while Nvidia was leading up to $40,000 with the hopper chip . The result was a total margin that peaked at 78.4% in the first quarter of fiscal year 2025.
Nvidia’s concern after February 26th is that computing speed is not everything in the AI space. It is dominated because it seeks from a hardware business in demand. But as the rarity of AI-GPUs fades, so too are the company’s pricing power and its supercharged total margin.
While most investors focus on direct competitors such as AMD, the bigger threat is the possibility of losing valuable data center real estate from top customers in net sales. Most members of “The Magnificent Seven” internally develop their own AI chips. These GPUs are unlikely to surpass the computing possibilities of Nvidia’s hopper and/or blackwell chips, but they are rather cheap and have no backlog. This is a recipe for future ordering of Nvidia hardware from America’s most influential businesses to be disappointed.
Nvidia’s total margin retrace has scored 380 basis points from an all-time high of 78.4% over the past two quarters. Don’t be surprised if widening internal and external competition and AI-GPU shortages will slash, while also squeezing Nvidia’s gross profits and its inventory.
Image source: Getty Images.
Tariffs and trade restrictions
If Wall Street tends to reward, regardless of the rating, it is predictability. Unfortunately, various uncertainties regarding tariffs and export restrictions could lead to Nvidia’s outlook, including the unknowns more than usual.
On the campaign trail, then Donald Trump was approaching his willingness to use tariffs if elected to promote American interests. The idea behind tariffs is that by imposing them on some imports, it helps domestic manufacturers become more competitive in prices. Last week, Trump enacted a 10% tariff on certain items from China.
However, an analysis released in December from Liberty Street Economics, which publishes research from the Federal Reserve Bank of New York, shows that shares of public companies exposed to Trump’s Chinese tariffs in 2018 and 2019 were announced. It was also found to have been significantly worse. Companies that were not exposed. On average, these low-performing companies suffered a decline in profits, employment, sales and labor productivity from 2019 to 2021.
Nvidia does not import products from China, but the world’s second economy is one of the largest hardware buyers. Tensional trade ties between the US and China could risk billions of dollars in Nvidia’s quarterly sales.
Worse, the Biden administration has restricted Nvidia’s powerful AI chip exports to China for three consecutive years (2022-2024). While President Trump and former President Joe Biden have not looked much, protecting the interests of American AI is one of those rare shared points. It is unlikely that Trump or his administration will loosen restrictions surrounding AI-GPU exports to China.
These restrictions are likely to be reflected in Nvidia’s outlook and could lead to careful commentary from its management team.
Historical precedent
After reporting the results of FY2025 on February 26th, the third and very specific reason why Nvidia shares are overwhelmed is a historic precedent. History has a perfect track record when it comes to innovations in the next Big, which is bad news for the face of the artificial intelligence movement.
One of Nvidia’s more common concerns is that all game-changing innovations over the course of 30 years, including the Internet, have passed bubble burning events. The bubble is because investors have the awful habit of overestimating how quickly new technology is adopted and gaining mainstream utilities. With AI, paper has many use cases, but most companies don’t have a clear blueprint to optimize their technology and significantly improve sales and profits from it.
If you have Nvidia’s silver lining, it is the company’s established business segment that is ahead of the AI revolution. If the proverb AI bubble bursts, Nvidia’s inventory is partially supported by GPU demand for games and cryptocurrency mining, as well as virtualization software demands.
Other historic battles Nvidia fights are against its expensive ratings. From June to July 2024, Nvidia shares surpassed the 40 price and sales (P/S) ratio. Nvidia has retreated its P/S ratio high last summer, but its inventory remains expensive, especially given the laundry list for the challenges mentioned above.
All Wall Street Analysts are hoping to attract Nvidia stocks in 2025, but the tables appear to be set to be underperforming.
