NVIDIA Corporation’s NVDA gross margin faces a new test as memory prices rise sharply amid the artificial intelligence (AI) infrastructure boom. The company delivered a strong 75% non-GAAP gross margin in the second quarter of fiscal 2027, but management expects this metric to decline in coming quarters. Still, NVIDIA’s pricing power, strong Blackwell demand and long-term supplier relationships could help it protect profitability above the 70% level.
NVIDIA expects third-quarter fiscal 2027 non-GAAP gross margin of 74%, plus or minus 50 basis points, down from 75% in the second quarter. The company expects non-GAAP gross margin to come down to 71%-72% in the fourth quarter before recovering to 72%-73% in fiscal 2028. The pressure is largely tied to higher memory costs. During the second-quarter earnings call, management stated pricing conditions have become more difficult than previously expected.
The impact is significant because memory is an important component of NVIDIA’s AI systems. Yet the higher costs are also a result of the same AI demand driving NVIDIA’s growth. The company’s second-quarter revenues jumped 106% year over year to $96.2 billion, while Data Center revenues surged 117% to $89 billion. Strong demand for Blackwell Ultra helped lift non-GAAP gross margin 250 basis points from the year-ago quarter.
NVIDIA is taking steps to secure supply. Its supply and capacity commitments increased to $279 billion, primarily because of memory procurement. The company also has long-standing relationships with the three major memory suppliers — Micron Technology, SK Hynix and Samsung — and is working with them to expand capacity.
Pricing power could provide another cushion. NVIDIA expects to implement price increases beginning in fiscal 2028, helping margins recover toward 72%-73%. With AI demand remaining strong and Vera Rubin entering production, NVIDIA appears capable of keeping gross margins comfortably above 70%, although near-term pressure is likely.
NVDA’s Rivals AMD & INTC Face Margin Tests Amid AI Chip Boom
NVIDIA’s main competitors, Advanced Micro Devices, Inc. AMD and Intel Corporation INTC, are also witnessing margin improvement amid the rising demand for AI chips.
Advanced Micro Devices offers a growing alternative in AI accelerators. Its second-quarter 2026 revenues rose 50% year over year to $11.54 billion, while Data Center revenues jumped 107% to $6.72 billion, helped by Instinct MI350 GPUs and EPYC processors. AMD’s non-GAAP gross margin expanded to 56.2% from 43.3%, reflecting a favorable mix shift toward higher-value Data Center products.
Despite the significant improvement, Advanced Micro Devices’ non-GAAP gross margin remained well below NVIDIA’s. This suggests AMD has a lower cushion to absorb rising memory costs.
Intel is another competitor benefiting from growing AI infrastructure demand through its Xeon CPUs and manufacturing business. The company’s second-quarter 2026 revenues increased 25% year over year to $16.13 billion, while non-GAAP gross margin expanded to 41.8% from 29.7%.
Though Intel expects continued strong demand for server CPUs, it has warned that higher memory, wafer and substrate prices could pressure margins. The company has been investing heavily in manufacturing, including a planned $5.7 billion expansion of its Ireland facility.
For NVIDIA, the key advantage remains its much higher gross margin. AMD and Intel face their own cost pressures, but NVIDIA's strong AI demand and pricing power could give it greater flexibility to absorb higher memory costs while keeping margins above 70%.
NVIDIA’s Price Performance, Valuation and Estimates
Shares of NVIDIA have risen around 20.2% year to date, outperforming the Zacks Computer and Technology sector’s gain of 15.5%.
NVIDIA YTD Price Return Performance
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From a valuation standpoint, NVDA trades at a forward price-to-earnings ratio of 17.98, below the sector’s average of 20.22.
NVIDIA Forward 12-Month P/E Ratio
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The Zacks Consensus Estimate for NVIDIA’s fiscal 2027 and 2028 earnings implies a year-over-year increase of approximately 93.3% and 64%, respectively. Estimates for fiscal 2027 and 2028 have been revised upward over the past seven days.
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NVIDIA currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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