The one number that will actually move Nvidia's stock Wednesday night

Nvidia is set to release another impressive earnings report after the market closes on Wednesday, and Wall Street is once again anticipating significant excitement.

Analysts forecast revenue of $78.8 billion, representing an increase of nearly 80% compared to the same period last year. Earnings per share (EPS) are projected at $1.77, nearly twice the amount from the prior year. The optimism surrounding Nvidia's performance is well-founded; as per The Motley Fool, the chipmaker has surpassed Wall Street's earnings expectations in 21 of the last 23 quarters, reflecting five consecutive years of exceeding benchmarks.

The keen interest in Nvidia's earnings is not attributed to any concerns of underperformance. An earnings beat is almost expected. Instead, the spotlight is on Nvidia as the leading beneficiary of the AI boom, pivotal to the capital expenditure plans of every hyperscaler and a focal point of investor anxiety. Following the last earnings report in February, which resulted in a 7% EPS beat, Nvidia's stock price fell 6% on the day and experienced an 11% decline a month later, according to 24/7 Wall St.

CEO Jensen Huang has expressed frustration regarding this no-win situation—where the stock can deliver exceptional results yet still face a downturn. Consequently, investors will not be fixated on the headline revenue figure; their attention will be directed toward a less prominent metric known as gross margin.

What is gross margin?

Gross margin refers to the percentage of each sales dollar that a company retains after deducting the cost of producing its product. For instance, if Nvidia sells a chip for $100 at a manufacturing cost of $25, the gross margin would be 75%. The remaining $75 must cover all other expenses, including profits, salaries, and taxes, but the 75% indicates the company's pricing power.

For a reference point, grocery stores typically operate with gross margins around 25%. Walmart usually averages about 24%. Apple, often regarded as one of the most profitable hardware firms globally, operates at approximately 46%. In contrast, Microsoft, predominantly a software company, maintains a gross margin of around 70%.

Nvidia, which deals in tangible chips, reports a gross margin of 75%—a figure rarely seen in the physical economy. This high margin exists because Nvidia's customers—hyperscalers such as Microsoft, Meta, and Amazon, along with cutting-edge model providers like Google and OpenAI—currently lack viable chip alternatives. Nvidia holds a first-mover advantage in a critical segment of the AI supply chain; however, competition is on the rise.

Why it matters tonight

In February, Nvidia informed investors to anticipate a non-GAAP gross margin of approximately 75%, plus or minus half a percentage point, for the current quarter. There are several factors that could lead to a miss.

The first is pricing pressure. Hyperscalers like Microsoft and Meta have been Nvidia's most dependable customers, yet they have also been vocal about seeking alternatives.

Google has begun offering access to its proprietary TPU chips and recently entered into a multi-gigawatt agreement with Anthropic. Similarly, Amazon introduced its Trainium3 chip in late 2025, claiming potential savings of 30% to 40% for customers compared to Nvidia, as noted by AWS executive Dave Brown. Microsoft debuted its Maia 200 chip in January and has already started implementing it in Azure data centers. In March, Meta unveiled four generations of its own AI processors, and in April, they arranged to purchase millions of Amazon's custom AI CPUs, chips that pose direct competition to Nvidia's Vera CPU. Following the announcement of the agreement, Amazon's stock reached near-record levels.

This scenario does not imply that hyperscalers can entirely detach from Nvidia—they cannot. However, it creates leverage that could exert downward pressure on the pricing of Nvidia's chips.

The second factor is the manufacturing costs associated with Nvidia's current chips. The Blackwell chip architecture, set for release in 2024, is more intricate and costly to produce than its predecessor. If these costs are escalating more than anticipated, the gross margin may decline.

The third factor is product mix. If a larger proportion of revenue this quarter stems from Nvidia's lower-margin products, which it historically has been known for, such as gaming cards and older chips, the overall average will decrease.

The consensus among analysts stands at 74.5%, slightly below Nvidia's own guidance. A preview from CoinDCX succinctly captured the stakes: "A gross margin print below 74.5% would represent the most bearish indicator in this Nvidia earnings report, regardless of headline revenue."