Nvidia (NVDA +1.67%) has been one of the biggest winners of the artificial intelligence (AI) boom so far. The tech giant designs the world's most powerful chip -- a graphics processing unit (GPU) -- and it's become the star player in the AI buildout. GPUs are used to drive the most critical AI tasks, such as the training and inference of models.
The company hasn't stuck to only chips, though. Instead it's constructed an AI empire, offering the products and services customers need to develop and expand infrastructure and eventually apply AI to real-life problems.
All of this has helped drive Nvidia's revenue to record levels quarter after quarter; in the latest full year, revenue surged 114% to $130 billion. The company has also been able to generate high profitability on sales, with gross margin consistently topping 70%.
This is fantastic, but considering the potential for a tougher economic environment ahead, investors have worried about one particular thing -- and this factor could determine whether Nvidia's growth soars or sinks in the quarters ahead. Now, as earnings season unfolds, we're about to get some answers on this point. In fact, some key information could be announced this week, making right now a make-or-break moment for Nvidia. Here's what to watch for.
Image source: Getty Images.
Nvidia's high-performance products
So first, let's consider the reason for the company's success. Of course, its high-performance products and services top the list. Nvidia's latest Blackwell architecture, released this winter, includes various game-changing elements; these include the fastest chip yet, as well as gains in reliability, networking, and security. Demand for Blackwell was so high that it exceeded supply, and Nvidia is still working tirelessly to ensure delivery of this innovative platform to customers.
What has also played a big role in Nvidia's success, though, is the general demand for AI. If customers weren't interested in building out major platforms, Nvidia's revenue picture would look much different. The company relies heavily on this need for AI -- in the most recent quarter, 90% of its total revenue came from its data center business.
This is why the general trend in AI investment and buildout directly impacts its prospects for revenue in the quarters ahead. Any signs of a decline in such spending would immediately spark worries in the investment community about Nvidia's growth.
NASDAQ: NVDA
Key Data Points
What's happening this week
And this brings me to the crucial happenings to watch this week, as they could seriously impact Nvidia's prospects and stock performance. Major Nvidia customers Microsoft, Amazon, and Meta Platforms each report quarterly earnings this week -- and during earnings calls, these companies generally offer an update on their AI programs and spending plans for the year.
Though these three companies have been going all in on AI in recent quarters, recent events could alter their strategies. President Donald Trump's plans to impose tariffs on imports worldwide may hurt them in two ways: Tariffs could increase their expenses as they import parts and finished goods, and in an environment of higher prices caused by tariffs, consumers may have less money to spend on these tech companies' products. The concern is that against this backdrop, Nvidia's customers may slow or cut their AI spending.
So it will be very important for Nvidia shareholders (or potential shareholders) to listen closely to any comments on AI plans from Microsoft, Amazon, and Meta during their earnings reports.
A clue from Alphabet
Now if you're worried, I have good news for you. So far, there's reason to be optimistic about AI demand ahead -- even with the current tariff turmoil. Last week another big Nvidia customer, Alphabet (GOOG +1.99%) (GOOGL +1.71%), reiterated its plans for $75 billion in capital spending this year and said its relationship with Nvidia is a "key advantage." Alphabet also said it will offer Nvidia's next-generation Vera Rubin superchips when they become available, further showing an ongoing commitment to the chip designer.
We also have a positive signal from Amazon Web Services (AWS) ahead of Amazon's earnings report. Last week, an analyst report suggested the company might be cutting back on AI spending, but an AWS executive calmed fears, saying expansion plans haven't changed.
All of this means that yes, Nvidia has reached a make-or-break moment. Ongoing strength in AI spending would be great news, but any surprise cut in spending or AI buildout by a major customer could deal a significant blow to the chip giant, at least in the near term. As I mentioned above, signs so far are showing the pace of this AI boom may continue uninterrupted -- but only reassurances from these big Nvidia customers this week will confirm this.
