For more than two years, the bulls have ruled the roost on Wall Street. The mature stock-powered Dow Jones Industrial Average, benchmark S&P 500, and innovation-inspired Nasdaq Composite have all vaulted to numerous record-closing highs.
Although upside catalysts have been abundant and include the likes of Donald Trump's return to the White House and better-than-expected corporate earnings, nothing has propelled Wall Street's major stock indexes higher quite like the artificial intelligence (AI) revolution.
According to the analysts at PwC, AI is a $15.7 trillion addressable market by 2030. Empowering AI software and systems with the ability to reason, act, and evolve without human intervention gives this technology global reach.
Image source: Getty Images.
While the addressable market for AI is enormous, no company has stood out as a more direct winner of this technological evolution than semiconductor titan Nvidia (NVDA +0.99%). Entering this week, Nvidia stock had gained close to $3 trillion in market value since the end of 2022.
But with Nvidia's 2025 fiscal fourth-quarter operating results on tap after the closing bell on Feb. 26 (for the year ended Jan. 26, 2025), one all-important question needs to be answered: Can this parabolic run-up continue?
Though most investors will home in on Nvidia's sales and profit growth as indicators of the company's future success, another figure provides a clear answer to this key question.
How Nvidia became Wall Street's most important stock
Before any predictions can be made about the future, it's important to know how we got to where we are now. In other words, how Nvidia grew from a somewhat relevant tech company to the most important stock on Wall Street.
Nvidia's parabolic climb is a reflection of its market share dominance in AI-accelerated data centers. The analysts at semiconductor analysis firm TechInsights estimate that Nvidia accounted for 98% of the graphics processing units (GPUs) shipped to enterprise data centers in 2022 and 2023. With orders for the ultra-popular Hopper (H100) chip and successor Blackwell GPU architecture backlogged, there's a good chance Nvidia maintained its monopoly like market share last year.
NASDAQ: NVDA
Key Data Points
Working hand-in-hand with the otherworldly demand for Nvidia's hardware is AI-GPU scarcity. When an in-demand product is in short supply, the price of said product tends to rise. In Nvidia's case, it was netting upwards of $40,000 for its Hopper chip in early 2024, which is considerably more than the $10,000 to $15,000 price tag that accompanied Advanced Micro Devices (AMD +2.00%) Instinct MI300X AI-accelerating chips.
Nvidia's CUDA software platform has played a key role in its success, too. CUDA is the toolkit developers use to get the most out of their GPUs. Whether developers are maximizing computing potential or building a large language model, CUDA has helped keep Nvidia's customers loyal to its ecosystem of products and services.
Lastly, Nvidia has benefited from high-profile orders. Most members of the "Magnificent Seven" have placed sizable orders with Wall Street's AI darling, which validates that its data center hardware is the preferred choice.
Image source: Getty Images.
The sustainability of Nvidia's parabolic climb rests with one operating figure
With a better understanding of how Nvidia catapulted to a $3.3 trillion valuation, let's return to the question at hand: Can this parabolic run-up continue?
If this question were solely based on revenue growth, the answer might be yes. Nvidia recorded $27 billion in full-year sales in fiscal 2023 and could top $200 billion in revenue three years later. But there's a far more-encompassing operating figure that tells the tale of what's to come for Nvidia -- and it firmly suggests the music is slowing down and the party is nearing its end.
When seemingly everyone is surfing through Nvidia's fourth-quarter operating results for its sales and profit figures after the market closes on Feb. 26, my suggestion would be to pay especially close attention to the company's gross profit margin.
As noted, AI-GPU scarcity has worked in its favor. Nvidia is charging a sizable premium for its Hopper and Blackwell chips, relative to its competition, which in turn helped to lift its generally accepted accounting principles (GAAP) gross margin to a peak of 78.4% in the fiscal first quarter of 2025.
NVDA Gross Profit Margin (Quarterly) data by YCharts.
But since the fiscal first quarter, Nvidia's GAAP gross margin has been contracting. It came in at 75.1% in the fiscal second quarter, 74.6% in the fiscal third quarter, and the company's guidance in November called for a 73% GAAP gross margin (+/- 50 basis points) for the fiscal fourth quarter.
This (expected) three-quarter decline in GAAP gross margin is a pretty clear indication that competition is finally picking up. Even though Nvidia is in no danger of losing its leading market share in AI-data centers, the ongoing production ramp from AMD and other direct competitors will (pardon the pun) chip away at the AI-GPU scarcity that's fueled Nvidia's phenomenal pricing power.
To add to this point, Nvidia is contending with internal competitive pressure. The same Mag-7 companies it's selling boatloads of GPUs to are internally developing their own AI chips for use in their data centers. Even if these internally developed chips fall short of Nvidia's hardware in terms of computing speed, they'll be significantly cheaper and not backlogged. These internally developed GPUs will weigh on Nvidia's pricing power as well.
There's also the possibility of customers opting for slower (i.e., lower margin) AI chips in future quarters. China's DeepSeek claims to have developed a large language model chatbot using slower Nvidia chips and at a fraction of the cost to what the Mag-7 companies are spending on AI GPUs. While this isn't something that'll show up in Nvidia's fourth-quarter operating results, it might weigh down the company's fiscal 2026 full-year GAAP gross margin outlook.
Nvidia's gross margin will tell the tale of whether or not its parabolic move higher is sustainable.
