May has been a month of monster news events. It began with Berkshire Hathaway's Warren Buffett announcing plans to step down as CEO by the end of the year. This was followed just days later by the Federal Reserve Open Market Committee meeting on interest rates. All the while, earnings season rolled on and President Trump's administration announced numerous changes to tariff and trade policy.
But the pinnacle of news events, in the eyes of investors, might just be Nvidia's (NVDA -0.27%) fiscal 2026 first-quarter operating results, which are scheduled for release following the closing bell on May 28.
However, this highly anticipated event may turn out to be a dud for Wall Street's artificial intelligence (AI) champion.
Image source: Getty Images.
Nvidia ascends the pedestal as Wall Street's AI darling
For more than two years, AI has been the hottest thing since sliced bread on Wall Street. The ability to empower software and systems to make split-second decisions without human intervention, as well as learn over time, is a game-changer than has relevancy to virtually all industries around the globe.
Nvidia finds itself at the center of the evolution of the AI movement. Its Hopper (H100) graphics processing unit (GPU) and successor Blackwell GPU have enjoyed near-monopoly share status in enterprise AI-accelerated data centers. No external competitors have come particularly close to surpassing the compute potential of Nvidia's hardware.
Wall Street's AI darling has also benefited from ongoing AI-GPU scarcity. Nvidia isn't lacking for orders -- it's lacking for the physical GPUs to fulfill all the orders it has. When demand for a good or service outpaces its supply, the price for said good or service will rise until demand tapers. According to online technology-focused publication Tom's Hardware, Nvidia's Hopper chip was priced at a 100% to 300% premium to Advanced Micro Devices' (AMD -1.43%) Instinct AI-accelerating chips early last year.
The advantage of premium pricing power can be seen in Nvidia's gross margin. Before the AI revolution took shape, Nvidia's generally accepted accounting principles (GAAP) gross margin commonly vacillated between 55% and 65%. In the fiscal first quarter of 2025 (ended April 28, 2024), it peaked at 78.4%.
Investors flock to Nvidia because of its innovative prowess, as well. CEO Jensen Huang is aggressively investing in the company's AI future and aiming to bring a new AI-GPU to market on an annual basis. Following the Hopper and Blackwell are the Blackwell Ultra AI platform, Vera Rubin, and Vera Rubin Ultra. The latter three are penned for their debuts in the second-half of 2025, second-half of 2026, and second-half of 2027, respectively. If Nvidia can hold to these innovation timelines, it'll have no trouble maintaining its compute advantage.
Lastly, Nvidia delivered where it counts. After reporting $27 billion in full-year sales in fiscal 2023, its revenue skyrocketed to $130.5 billion in fiscal 2025. In the current fiscal year, the consensus of nearly five-dozen analysts is almost $200 billion in sales.
Despite all of this working in Nvidia's favor, the table is set for Wall Street's AI icon to underwhelm on May 28.
Image source: Getty Images.
Nvidia stock is primed for disappointment on May 28
Between the end of 2022 and present day, Nvidia has catapulted from a somewhat important tech stock with a $360 billion market cap to arguably the most-important tech company on the planet with a $3.3 trillion market valuation. Never in history has a megacap company added $3 trillion in market cap so quickly -- and there's absolutely no room for error.
Nvidia topping consensus sales and profit expectations for the fiscal first quarter wouldn't be a surprise given the company has surpassed consensus earnings per share for nine consecutive quarters. But there's more to Nvidia's headline numbers than meets the eye.
For instance, it's a certainty that competition is picking up from all angles. AMD and China-based Huawei are developing and introducing next-gen AI-GPUs that have the potential to directly compete with Nvidia.
But it's not the external competition that Nvidia and its shareholders should be worried about. It's the members of the "Magnificent Seven," many of which are Nvidia's top customers by net sales, which are developing AI-GPUs and solutions to internally use in their data centers. Even if this internally developed hardware is inferior to the Hopper and Blackwell in compute potential, these chips will be considerably cheaper and more accessible (i.e., they're not backlogged).
The problem internal development presents is that it reduces AI-GPU scarcity for the businesses that spend the most on AI infrastructure. In simpler terms, it offers fewer future opportunities for Nvidia's GPUs to win valuable AI-data center space.
Nvidia's GAAP gross margin is forecast to decline to 70.6% (+/- 50 basis points) for its fiscal 2026 first quarter. NVDA Gross Profit Margin (Quarterly) data by YCharts.
We've already begun to see the impact of growing internal competition on Nvidia's GAAP gross margin. As you can see in the chart above, Nvidia's GAAP gross margin peaked at 78.4% in the fiscal first quarter one year ago. It then fell to 75.1% in Q2 2025, 74.6% in Q3 2025, 73% in Q4 2025, and is forecast to come in at 70.6% (+/- 50 basis points) in Q1 2026.
What this persistent margin decline tells us is that Nvidia is losing what's been its biggest competitive advantage: its pricing power. As AI-GPU scarcity diminishes over time, Nvidia's gross margin should fall. It's the company's GAAP gross margin, along with the forecast for fiscal Q2's GAAP gross margin, that can cause Nvidia stock to underwhelm on May 28.
It's also not clear if Nvidia's accelerated innovation timeline that involves bringing a new GPU to market annually will help or hinder its operations. Though innovation will assist Nvidia in retaining its compute lead, it could quickly depreciate Hopper GPUs and cause future buyers to question when they want to upgrade and how much they want to spend on AI infrastructure.
Finally, there's the ongoing overhang of historic precedent. Since (and including) the advent of the internet in the mid-1990s, there hasn't been a truly game-changing innovation or technology that's escaped a bubble-bursting event. This is to say that investors continually overshoot on their estimates of how quickly a game-changing technology will gain utility or enjoy widespread adoption.
Though we've witnessed sizable AI investments from some of Wall Street's most-influential businesses, most companies haven't yet optimized their AI solutions and/or aren't generating a profit on their AI investments. This implies we're careening toward yet another next-big-thing innovation bubble-bursting event.
While Nvidia has proved me wrong before, the table appears set for an underwhelming performance.
