Is the Nvidia bubble about to burst? 3 numbers that make me think it might be.

One of the most important dates in modern history is November 30, 2022 — the day OpenAI released ChatGPT to the public. It didn’t take long for people around the world to become completely enamored with the potential of generative artificial intelligence (AI).

Perhaps no company has benefited as much from the AI ​​revolution as the semiconductor and data center specialist Nvidia (NVDA -0.03%). Since ChatGPT’s commercial launch about two years ago, Nvidia’s stock is up more than 700%.

Nvidia has completely dominated the high-performance computing market, largely through its industry-leading graphics processing units (GPUs). However, three trends visible in the company’s latest earnings report have me worried that the euphoric bubble surrounding Nvidia may be about to burst.

1. Revenue and profit growth are slowing

Nvidia reports its revenue in five different categories, but the vast majority of its sales now come from its data center business. Within the data center category, Nvidia splits its revenue into two other subcategories: compute and networking.

Over the past two years, PC and networking sales have been off the charts, consistently posting triple-digit percentage growth as demand for Nvidia GPUs has remained robust. A few weeks ago, Nvidia reported results for the second fiscal quarter 2025, which ended on July 28. The company’s total quarterly revenue of $30 billion set a new record, as did its data center total of $26.3 billion.

While these numbers might make Nvidia seem unstoppable, underlying trends suggest otherwise. The table below shows Nvidia’s annual and sequential growth rates for total revenue and data center revenue over the past five quarters.

Data source: Nvidia. YOY = year over year. QoQ = quarter over quarter.

It’s hard to criticize a company that’s growing as fast as Nvidia. What worries me is not its ability to create demand, but the rate at which that demand is emerging. Data center sales — and by extension, Nvidia’s entire sales base — are starting to show signs of slowing. Some of this can be attributed to the cyclicality of the semiconductor industry in general, while some of the sales trends can be attributed to continued bottlenecks in Nvidia’s supply chain.

However, I’m a little afraid of a slowdown in sales. Moreover, further analysis suggests that where Nvidia’s growth is coming from could be an even bigger problem.

2. Customer focus is becoming more and more evident

Looking at the top numbers alone doesn’t do much to determine the health of a business. A more useful statistic to look at is customer concentration. This reflects how diversified a company’s sales base is.

Although Nvidia sells its GPUs around the globe, analysis of the company’s financial reports suggests that the business has become highly concentrated. In the second quarter of fiscal 2025, nearly half of Nvidia’s $30 billion in revenue came from just four customers. This level of focus isn’t really anything new, and I see increasing competition as a big reason why Nvidia’s sales slowdown could be further exacerbated.

While Nvidia faces direct competition from Advanced microdevicesthe company is also beginning to witness an increase in competition from tangential sources such as Microsoft, adze, Meta platformsand Amazon.

Many of these “Magnificent Seven” companies are big buyers of Nvidia technology. However, based on observations from executives at these various megacaps, many of these companies are looking to reduce their reliance on Nvidia and design their own chips that directly compete with its technology.

Even as that competition begins to take shape, I think Nvidia will have little trouble finding new buyers. But with increased competition comes another problem: a loss of pricing power. As more AI-capable GPUs become widely available — possibly to the point of commercial hardware — it’s likely that Nvidia won’t be able to command such high prices for its chips.

This dynamic brings me to my final and most significant concern about Nvidia’s prospects.

Image source: Getty Images.

3. The most important metric: gross margin

With its existing pricing power, Nvidia has consistently enjoyed strong margins. However, the company’s latest earnings report revealed a notable decline in gross margin.

Image source: Nvidia.

I wouldn’t worry too much about a single quarter’s decelerating margin profile, but the larger implications here are hard to ignore.

If margins continue to deteriorate amid increasing competition, Nvidia’s bottom line could be significantly hurt. Its free cash flow and profitability would begin to decline, leaving it with less ability to invest in research and development, marketing and other areas of innovation or growth tactics.