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NVDA's Gross Margin Faces Pressure: Can It Offset Rising Memory Costs?
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Key Takeaways
NVIDIA expects fiscal Q3 2027 gross margin to decline to 74% from 75% in the preceding quarter.
Fiscal Q2 revenues surged 106% to $96.2B, driven by a 117% jump in Data Center sales to $89B.
NVDA's supplier ties, pricing power and Vera Rubin's efficiency gains could help offset rising memory costs.
NVIDIA Corporation’s (NVDA - Free Report) gross margins could face pressure as rising memory costs and supply constraints challenge its ability to maintain strong profitability. However, the company’s pricing power, growing AI demand and shift toward advanced platforms could help offset some of these headwinds.
In the second quarter of fiscal 2027, NVIDIA reported a non-GAAP gross margin of 75% compared with 72.4% a year earlier and 75% in the previous quarter. Revenues jumped 106% year over year and 18% sequentially to $96.2 billion, while Data Center revenues surged 117% to $89 billion. These figures highlight the company’s strong position in the AI infrastructure market.
Still, NVIDIA expects gross margin to decline sequentially to 74% in the third quarter of fiscal 2027, plus or minus 50 basis points. Higher memory prices are a key concern because advanced AI systems require large amounts of high-performance memory. Tight supply could increase component costs and limit production flexibility.
NVIDIA has several ways to protect profitability. Its strong relationships with major memory suppliers could help secure supplies, while its advanced graphics processing units (GPUs) and integrated computing systems give it pricing power. The company is also increasing supply and capacity commitments to support future demand.
The Vera Rubin platform offers another potential boost. Its improved computing performance and efficiency could help customers justify higher spending on AI infrastructure, supporting NVIDIA’s ability to pass on some cost increases. Overall, NVIDIA’s margins may face near-term pressure, but strong demand and pricing power provide important support.
NVIDIA Rivals AMD & INTC Face Margin Pressure Too
Advanced Micro Devices, Inc. (AMD - Free Report) and Intel Corporation (INTC - Free Report) are expanding their AI businesses, but rising component costs and production challenges could affect their profitability.
Advanced Micro Devices reported second-quarter 2026 revenues of $11.54 billion, up 13% quarter over quarter, while its non-GAAP gross margin reached 56.2% compared with 55% in the first quarter. Its Data Center revenues climbed 16% sequentially to $6.7 billion, supported by demand for EPYC processors and Instinct GPUs.
However, Advanced Micro Devices’ third-quarter guidance indicates gross margin will remain flat sequentially. For the third quarter, it anticipates non-GAAP gross margin to be 56% in the third quarter. To continue improving margins, AMD must maintain cost control as it scales AI chip production.
Intel’s second-quarter revenues increased 25% to $16.1 billion, while its non-GAAP gross margin improved to 41.8% from 29.7% a year earlier. Still, Intel warned that shortages of memory, substrates and other components could persist into 2027, potentially limiting shipments and increasing costs.
Both companies face cost and supply challenges as AI infrastructure demand grows. NVIDIA has an advantage, with a 75% gross margin in fiscal second-quarter 2027, although its margin is expected to decline sequentially to 74% in the third quarter.
NVIDIA’s Price Performance, Valuation and Estimates
Shares of NVIDIA have risen around 14.5% year to date, underperforming the Zacks Computer and Technology sector’s gain of 16.5%.
NVIDIA YTD Price Return Performance
Image Source: Zacks Investment Research
From a valuation standpoint, NVDA trades at a forward price-to-earnings ratio of 15.29, below the sector’s average of 19.25.
NVIDIA Forward 12-Month P/E Ratio
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for NVIDIA’s fiscal 2027 and 2028 earnings implies a year-over-year increase of approximately 95% and 69.3%, respectively. Estimates for fiscal 2027 and 2028 have been revised upward in the past 30 days and seven days, respectively.
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NVDA's Gross Margin Faces Pressure: Can It Offset Rising Memory Costs?
Key Takeaways
NVIDIA Corporation’s (NVDA - Free Report) gross margins could face pressure as rising memory costs and supply constraints challenge its ability to maintain strong profitability. However, the company’s pricing power, growing AI demand and shift toward advanced platforms could help offset some of these headwinds.
In the second quarter of fiscal 2027, NVIDIA reported a non-GAAP gross margin of 75% compared with 72.4% a year earlier and 75% in the previous quarter. Revenues jumped 106% year over year and 18% sequentially to $96.2 billion, while Data Center revenues surged 117% to $89 billion. These figures highlight the company’s strong position in the AI infrastructure market.
Still, NVIDIA expects gross margin to decline sequentially to 74% in the third quarter of fiscal 2027, plus or minus 50 basis points. Higher memory prices are a key concern because advanced AI systems require large amounts of high-performance memory. Tight supply could increase component costs and limit production flexibility.
NVIDIA has several ways to protect profitability. Its strong relationships with major memory suppliers could help secure supplies, while its advanced graphics processing units (GPUs) and integrated computing systems give it pricing power. The company is also increasing supply and capacity commitments to support future demand.
The Vera Rubin platform offers another potential boost. Its improved computing performance and efficiency could help customers justify higher spending on AI infrastructure, supporting NVIDIA’s ability to pass on some cost increases. Overall, NVIDIA’s margins may face near-term pressure, but strong demand and pricing power provide important support.
NVIDIA Rivals AMD & INTC Face Margin Pressure Too
Advanced Micro Devices, Inc. (AMD - Free Report) and Intel Corporation (INTC - Free Report) are expanding their AI businesses, but rising component costs and production challenges could affect their profitability.
Advanced Micro Devices reported second-quarter 2026 revenues of $11.54 billion, up 13% quarter over quarter, while its non-GAAP gross margin reached 56.2% compared with 55% in the first quarter. Its Data Center revenues climbed 16% sequentially to $6.7 billion, supported by demand for EPYC processors and Instinct GPUs.
However, Advanced Micro Devices’ third-quarter guidance indicates gross margin will remain flat sequentially. For the third quarter, it anticipates non-GAAP gross margin to be 56% in the third quarter. To continue improving margins, AMD must maintain cost control as it scales AI chip production.
Intel’s second-quarter revenues increased 25% to $16.1 billion, while its non-GAAP gross margin improved to 41.8% from 29.7% a year earlier. Still, Intel warned that shortages of memory, substrates and other components could persist into 2027, potentially limiting shipments and increasing costs.
Both companies face cost and supply challenges as AI infrastructure demand grows. NVIDIA has an advantage, with a 75% gross margin in fiscal second-quarter 2027, although its margin is expected to decline sequentially to 74% in the third quarter.
NVIDIA’s Price Performance, Valuation and Estimates
Shares of NVIDIA have risen around 14.5% year to date, underperforming the Zacks Computer and Technology sector’s gain of 16.5%.
NVIDIA YTD Price Return Performance
Image Source: Zacks Investment Research
From a valuation standpoint, NVDA trades at a forward price-to-earnings ratio of 15.29, below the sector’s average of 19.25.
NVIDIA Forward 12-Month P/E Ratio
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for NVIDIA’s fiscal 2027 and 2028 earnings implies a year-over-year increase of approximately 95% and 69.3%, respectively. Estimates for fiscal 2027 and 2028 have been revised upward in the past 30 days and seven days, respectively.
Image Source: Zacks Investment Research
NVIDIA currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.