The big day for Wall Street has officially arrived! Following the closing bell today (Feb. 25), Nvidia (NVDA +2.27%) will release its highly anticipated fiscal 2026 fourth-quarter operating results (ended Jan. 25, 2026) and likely provide operating guidance for fiscal 2027.
Nvidia has quickly become the face of the artificial intelligence (AI) revolution, with its graphics processing units (GPUs) holding a virtual monopoly in enterprise data centers. As a result, shares of the company have skyrocketed by approximately 1,200% since the start of 2023. Handily exceeding consensus sales and profit forecasts from Wall Street analysts has been the norm.
Image source: Nvidia.
While there's a high probability that Wall Street's largest publicly traded company will leap past consensus estimates, yet again, there's another operating metric that investors should be using to determine if Nvidia's fourth-quarter performance and fiscal 2027 outlook are a success or failure: gross margin.
All eyes are going to be on Nvidia's gross margin
Nvidia has had two core factors working in its favor. First, its Hopper (H100), Blackwell, and Blackwell Ultra GPUs offer superior compute capabilities relative to its external competitors, such as Advanced Micro Devices. Customers are often willing to pay a premium for a superior product.
Secondly, demand for GPUs (as a whole) has substantially outweighed their available supply. Even with Taiwan Semiconductor Manufacturing ramping up its monthly chip-on-wafer-on-substrate capacity at a rapid pace, there aren't enough GPUs to satisfy demand. This supply demand dynamic has fueled strong pricing power for Nvidia.
NASDAQ: NVDA
Key Data Points
The rise of AI has catapulted Nvidia's gross margin from the low-to-mid 60% range to an estimated 74.8%, based on generally accepted accounting principles (GAAP), for the fiscal fourth quarter.
Nvidia's GAAP gross margin should be the headline figure of its fourth-quarter report and full-year outlook because it cuts right to the most important question: Does Nvidia still have exceptional pricing power?
If the company's GAAP gross margin guide for fiscal 2027 remains in the 74% to 75% range (if not higher), it signals that clients are still paying top dollar for the upcoming Vera Rubin GPU, as well as Blackwell Ultra. This would be a success and indicate the potential for additional upside in Nvidia stock.
Image source: Getty Images.
However, if Nvidia's GAAP gross margin guide slips to the low 70% range (or below), it would almost certainly indicate that one or more competitive pressures are taking their toll. Even though Nvidia's GPUs hold a virtual monopoly in AI-accelerated data centers for the moment, AMD's GPUs are less costly and more readily available. There's a real possibility of external rivals (pardon the pun) chipping away at Nvidia's leading data center share.
Furthermore, most members of the "Magnificent Seven" are internally developing GPUs or AI solutions to use in their data centers alongside Nvidia's hardware. Although these chips are no match for the compute potential of Blackwell Ultra or Vera Rubin, they're cheaper, not backlogged, and can occupy valuable data center real estate.
While Nvidia's expansion of a multiyear GPU agreement with Meta Platforms last week may ease some of these fears, it nonetheless brings to light that an eventual lessening of GPU scarcity will adversely impact Nvidia's pricing power and GAAP gross margin.
One simple figure will likely set the stage for Nvidia this year.
