• JPMorgan analysts warn rising memory prices and input costs could pressure Nvidia's margins in the near term.
  • The company's gross margin recently dropped to 61%, partly due to an H20 GPU inventory write-down and higher memory costs.
  • Despite short-term headwinds, analysts maintain a positive long-term view, expecting margins to return to the mid-70% range by late 2025.

JPMorgan has issued a cautious note on Nvidia Corp., warning that the semiconductor giant may face near-term margin pressure due to escalating input costs, particularly for memory components. This comes despite the company's dominant market position and explosive growth in artificial intelligence hardware.

The warning follows Nvidia's recent financial results, which showed a surprising gross margin drop to 61% from an expected 71%. According to analysts familiar with the matter, this compression was largely driven by an H20 GPU inventory write-down and the ongoing impact of higher memory prices across the semiconductor supply chain.

"Input cost inflation, especially higher memory prices, could pressure Nvidia's margins," the JPMorgan analysis stated, while maintaining the firm's overall positive rating on the stock. The bank recently raised its price target to $250 per share, reflecting confidence in Nvidia's long-term prospects despite these near-term challenges.

Nvidia's leadership remains focused on maintaining margins in the mid-70% range for next year, but the upcoming ramp of its next-generation Rubin platform may initially dilute results. Company executives have acknowledged the margin pressure in recent discussions with analysts but emphasize that demand for their AI and data center products remains robust.

When reached for comment, a Nvidia spokesperson declined to address specific margin projections but pointed to the company's strong quarterly performance. The company recently reported April-quarter revenue of $44 billion, exceeding expectations, and provided July-quarter guidance of $45 billion despite ongoing headwinds from U.S. export restrictions to China.

The margin pressure comes amid broader supply chain challenges affecting the semiconductor industry. Multiple industry sources confirm that memory manufacturers have been raising prices steadily throughout 2024, creating cost pressures for chip designers and manufacturers alike.

Despite these challenges, analysts are largely giving Nvidia the benefit of the doubt. "We're still giving Nvidia the benefit of the doubt, expecting it to exit 2025 with margins back in the mid-70s," one analyst familiar with JPMorgan's thinking noted, speaking on condition of anonymity because they were not authorized to discuss the matter publicly.

Nvidia's transformation into the world's preeminent supplier for AI hardware over the past two years has positioned it to weather short-term margin compression. The company's return on equity continues to exceed 100%, and demand for products like its Blackwell platform continues to outstrip supply, providing some insulation against cost pressures.

Correction: An earlier version of this article misstated the timing of Nvidia's expected margin recovery. Analysts project margins will return to the mid-70% range by the end of 2025, not the beginning.