Nvidia’s remarkable five-year run of 1,776% gains may be reaching its zenith, according to DA Davidson tech analyst Gil Luria, who issued a cautionary outlook following the chip giant’s fourth-quarter earnings report. Despite revenue more than doubling year-over-year to $130.5 billion in fiscal year 2025, Luria warns that “this is as good as it gets for Nvidia.”
The market responded sharply to the earnings report, with Nvidia shares plunging 6% on Thursday, dragging the tech-heavy Nasdaq down 3%. The concern isn’t about Nvidia’s execution—the company is clearly delivering on its strategy—but rather about the inevitable deceleration of its explosive growth trajectory.
Three major headwinds are emerging for the AI chip leader. First, demand from Nvidia’s largest customers appears to have peaked. Microsoft, Meta Platforms, and Amazon—which collectively account for over one-third of Nvidia’s revenue—have signaled that capital expenditure increases are plateauing. “Two of their three largest customers have said capex will be flat into the first half of the year,” Luria noted, suggesting the unprecedented spending spree on AI infrastructure may be cooling.
The 78% year-over-year revenue growth in Q4 marked Nvidia’s slowest quarterly expansion in nearly two years, reinforcing concerns about momentum. Luria anticipates an eventual oversupply of GPU chips as companies begin scrutinizing their return on investment in AI compute capabilities.
Competition from China presents another significant challenge. Chinese labs are reportedly shifting inference workloads to Huawei’s GPU chips, demonstrating growing regional competitiveness. Additional trade restrictions are expected to further pressure Nvidia’s sales in the crucial Chinese market, regardless of tariff policies.
Perhaps most concerning for investors is the pressure on profit margins. Nvidia’s aggressive product release cycle—launching new GPU chips annually—creates a recurring margin squeeze. The company guided for approximately 71% gross profit margins in Q1, down from the mid-70s range, as it ramps production of its next-generation Blackwell GPUs. “Every time they get to 75% gross margins, a new product is going to drag it back down to the low 70s,” Luria explained.
Despite these concerns, Luria maintains a “Neutral” rating with a $135 price target, indicating he’s not outright bearish on the AI chip leader’s prospects.
Key Quotes
This is as good as it gets for Nvidia.
Gil Luria, tech analyst at DA Davidson, made this stark assessment following Nvidia’s Q4 earnings report, suggesting the AI chip maker has reached peak growth despite strong execution on its business strategy.
Their big customers increased their spend the most into Q4 as they ever have and probably ever will.
Luria highlighted that Nvidia’s largest customers—Microsoft, Meta, and Amazon—have likely reached maximum spending levels on AI infrastructure, with two of the three indicating flat capital expenditures for the first half of the year.
Despite demand in the near-term continuing to be strong, we still believe a decline in demand for NVIDIA compute is inevitable as customers begin to scrutinize their ROI on AI compute.
The analyst warned that the current strong demand masks an underlying shift toward return-on-investment analysis, which could lead to reduced orders as companies evaluate the actual business value of their AI infrastructure investments.
Every time they get to 75% gross margins, a new product is going to drag it back down to the low 70s.
Luria explained the structural challenge facing Nvidia’s profitability: the company’s annual product release cycle creates recurring margin compression as new GPU chips ramp up production, preventing sustained margin expansion.
Our Take
Nvidia’s situation exemplifies the classic technology growth paradox: success breeds competition, scale brings scrutiny, and rapid innovation compresses margins. The company isn’t failing—it’s succeeding so thoroughly that it’s reaching natural market constraints. The shift from infrastructure buildout to ROI evaluation represents a healthy maturation of the AI industry, even if it’s painful for growth-focused investors. What’s particularly noteworthy is the emergence of credible Chinese competition through Huawei, suggesting that AI chip technology is becoming more commoditized than bulls anticipated. The margin pressure from annual product cycles also reveals that Nvidia can’t simply rest on its architectural advantages—it must continuously innovate to maintain its position, which inherently limits profitability. This may mark the transition from AI’s “land grab” phase to its “prove it” phase, where sustainable business models matter more than raw capability demonstrations.
Why This Matters
This analysis signals a potential inflection point for the AI infrastructure boom that has driven unprecedented market gains over the past two years. Nvidia has been the primary beneficiary and bellwether of enterprise AI adoption, with its stock performance serving as a proxy for investor confidence in artificial intelligence’s commercial viability.
The slowdown in customer spending and margin pressure raises critical questions about the sustainability of massive AI infrastructure investments. As hyperscalers like Microsoft, Amazon, and Meta begin to moderate their capital expenditures, it suggests the initial buildout phase of AI data centers may be maturing faster than expected. This could have ripple effects across the entire AI ecosystem, from cloud providers to AI application developers who depend on affordable compute access.
The emerging ROI scrutiny is particularly significant—it indicates that enterprises are moving beyond the experimental phase and demanding tangible returns from their AI investments. This maturation could reshape the AI industry, favoring companies that can demonstrate clear value creation over those riding the hype cycle. For the broader technology sector and AI-dependent businesses, Nvidia’s deceleration may foreshadow a more measured, sustainable phase of AI development.
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