Dear Reader,
You've heard about Nvidia's blowout earnings.
And today I want to talk about a few things that I think a lot of folks missed when everybody was discussing them yesterday.
The Numbers You Already Know
Revenue hit $96.2 billion — up 107% year over year, up 18% from the prior quarter.
Of that $96 billion, $89 billion came from data centers.
At the end of the day, Nvidia is still essentially a data center company.
Gross margins came in at 75%.
Now, before I get into what people missed — let me explain why that gross margin number matters so much.
When you're analyzing any company — whether you want to buy the stock, back your buddy's restaurant, or invest in your friend's son's startup — look at the gross margins first.
If a company sells something for $100 and it costs $40 to make, that's a 60% gross margin.
Nvidia's is 75%.
That tells you they cost very little to make what they make, and they can charge high prices.
They have pricing power.
Which is exactly why everybody else is rushing in to compete and chip away at it.
There's a lot of fat in those margins.
What Most People Missed: Number One
Demand is broadening beyond the hyperscalers.
I was reading the earnings transcript carefully, and it's interesting how few news outlets picked this up.
In the first few years of the AI build-out, it was the Mag Seven doing all the spending.
Not anymore.
The CFO said it directly — sovereign governments, regional NeoClouds, enterprise customers, edge computing, air-gap data centers.
They now represent half of all data center business.
Think about what that means.
The rest of the world is joining the hyperscalers.
Countries, companies, and industries that were watching from the sidelines are now pulling in.
That tells you the build-out is still happening.
And it has a lot further to run.
What Most People Missed: Number Two
Supply constraints.
Nvidia said their numbers would be even higher — but they're being held back by what their suppliers can deliver.
Memory, CPUs, components.
The world is basically retooling itself for this build-out.
And there isn't enough of everything to go around.
Nobody in the mainstream press covered that.
What Most People Missed: Number Three
This one is the most important — and the most telling about where we are in this cycle.
Price hikes.
Memory prices have been rising sharply.
For the past four years, Nvidia has been able to pass every cost increase straight through to their customers.
Microsoft, Google, Amazon — they had no choice but to pay whatever Nvidia asked.
Now, for the first time, Nvidia is saying they cannot pass all of those hikes on.
They're going to have to absorb some of them.
The result?
They expect lower gross margins going forward.
From 75% today down to the low 70s — around 70 to 71%.
Now, some people will read that and shrug.
Three or four percentage points on gross margins, so what?
But think about what it's actually telling you.
There's more competition coming into their business.
They're selling to customers who don't have pockets as deep as the Mag Seven.
And the business is starting to mature.
The best way I can describe it is like a fruit tree.
All the big fat fruit is on the bottom.
You grab that first.
But once you've eaten everything you can reach from the ground, you have to start climbing.
You invest more.
The fruit gets smaller.
The return gets harder to come by.
That's what we're starting to see the first hints of in Nvidia's earnings.
And I don't think anybody is really talking about it.
But here's the thing.
When one chapter closes, another opens.
The era of buying Nvidia stock and watching it go straight up may be coming to an end.
But the company that sits underneath Nvidia — the one that supplies the critical architecture for every chip they build…
The one that collects a royalty on every Blackwell and every THOR chip that ships…
The one that NVIDIA tried to acquire outright and was blocked because Qualcomm, Microsoft, and Google threw a fit — that company is a very different story.
Nvidia's margins may be compressing.
But the royalty collector underneath them just keeps collecting.
I put together a full report on exactly who this company is and why I think the next big opportunity in AI isn't Nvidia itself — it's the quiet company Nvidia cannot function without.
Have a wonderful weekend.
“The Buck Stops Here,”
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Written by Dylan Jovine