What is the outlook for Nvidia’s gross margins? Via Investing.com

Investing.com — Nvidia’s (NASDAQ: ) gross margins have been under scrutiny, but according to analysts at Morgan Stanley in a note to clients on Monday, the concerns are largely overblown.

While Nvidia’s margins are expected to experience slight pressure, the bank’s analysts point out that this is part of a strategic shift to maintain dominance in the AI ​​processor market.

Morgan Stanley notes that Nvidia’s decision to adopt more aggressive product positioning and an annual product cadence is a key factor in this margin pressure.

“Nvidia’s gross margins are likely to decline slightly, but concerns are overblown in our view,” the analysts said, adding that the company is focused on delivering value while preventing competitors from gaining a foothold in the market.

“There are several placement and acquisition potentials on gross margins, but the biggest will be the decision to move to more aggressive product positioning, including the annual product cadence and the decision to price Blackwell for good value,” the bank adds .

They expect Nvidia’s gross margins to fall from 76% to around 74.5%. “The ability to put pressure on the entire competitive set by reducing GMs from 76% to 74.5% seems like a good trade-off,” writes Morgan Stanley.

A significant factor affecting margins, as mentioned above, is the introduction of new Blackwell chips. Morgan Stanley acknowledged that Blackwell will have lower gross margins than its predecessor, Hopper, mainly due to yield issues in the early stages of production.

The delay from 0-speed to 1-speed of the Blackwell silicon “was caused by low yields at 0-speed”, which resulted in a larger than usual stock reserve.

Despite these challenges, Morgan Stanley believes Nvidia will maintain a robust market share, likely surpassing 85% of AI processors this year, with further growth anticipated in 2025.

While the company is guiding gross margins in the “mid-70s” for the full year, Morgan Stanley believes that’s too conservative, and the margin pressures are part of Nvidia’s broader strategy to dominate the AI ​​ecosystem.