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Nvidia's Pricing Power Fades as AI Chip Scarcity Eases
24 Aug
Summary
- Nvidia's GAAP gross margin hit 78.4% in Q1 2025 due to AI-GPU scarcity
- Competitors like AMD and Huawei ramping up data center chip production
- Nvidia's top customers developing their own cheaper AI GPUs
As of August 24th, 2025, Nvidia's dominance in the AI-GPU market appears to be waning. The company had previously been able to command premium prices for its hardware due to an impressive backlog, with its GAAP gross margin reaching a high of 78.4% in the first quarter of fiscal 2025. However, this situation is now changing.
External competitors, such as Advanced Micro Devices and China-based Huawei, have been actively ramping up production of their data-center chips. Additionally, Nvidia's top customers, which include members of the "Magnificent Seven," have been internally developing their own AI GPUs and solutions for use in their respective data centers. While these chips may not pose a threat to Nvidia's compute advantages, they are considerably cheaper and not backlogged like Nvidia's offerings.
As a result, the insatiable demand for AI-accelerating chips is starting to calm, and Nvidia's pricing power and GAAP gross margin are expected to fade over time. In fact, the company has already been witnessing steady gross margin erosion for more than a year.
Furthermore, Nvidia's lofty valuation, with a trailing-12-month price-to-sales ratio hovering above 30, is likely to come under scrutiny. Historical precedent suggests that industry leaders of next-big-thing trends, such as the internet, have a relatively short leash when it comes to extended valuations. Nvidia, being one of the leading players in the AI revolution, may not be able to maintain its premium valuation for long.
