Nvidia Corporation (NVDA) stock recently experienced an 8.48% decline, a movement that has raised questions among investors. Despite the company’s impressive Q4 earnings numbers, the Wall Street analysts remain concerned over NVDA’s future profit margins.
Analysts Highlight Margin Pressures amidst Growth
Benchmark analyst Cody Acree said that Nvidia’s efforts to meet strong Blackwell chip demand have led the company to prioritize production over cost-cutting. This move may continue to pressure short-term gross margins. For the next quarter, Nvidia expects a 71% margin, down from 73.5% in Q4. However, looking ahead, Acree thinks that margins will either stay the same or rise slightly to about 71.0%-71.5% in Q2.
Also, DA Davidson analyst Gil Luria flagged margin concerns. The analyst expects fluctuations in NVDA’s profit margins associated with the rapid release of new GPU chips. Historically, new product launches have temporarily reduced gross margins. He noted that the anticipated 71% margin reflects these pressures and suggests future profitability could face further strain.
Luria also warned that chip oversupply risks could grow as major tech firms like Microsoft (MSFT), Meta (META), and Amazon (AMZN) plan to reduce their spending on advanced chips. This cut in spending by these companies, which are NVDA’s big three customers, could leave Nvidia with more chips than the market needs. At the same time, Chinese rivals are becoming stronger. Many labs in China are now using Huawei’s GPU chips for AI tasks instead of Nvidia’s, which could add to oversupply concerns.
Is NVDA a Good Stock to Buy?
Overall, analysts remain bullish on NVDA stock, with a Strong Buy consensus rating based on 38 Buys and three Holds assigned in the past three months. After a 55% rally in its share price over the past year, the average NVDA price target of $178.66 per share implies an upside potential of 48.7% from current levels.
