Nvidia CEO Jensen Huang 'rips the Band-Aid off' as AI chip giant resets expectations

Nvidia guided gross margins to settle at 72%-73% next year after repricing, down from 75%, as CEO Jensen Huang said the company “absorbed the cost increases” and “ripped the Band-Aid off” to reset expectations. The reset follows a fiscal Q2 earnings beat and a strong revenue outlook, with shares up about 4% after the results and guidance toward >$96B revenue in Q2 fiscal 2027. While margins are lower, management framed the demand backdrop as still strong enough to support ~70% of forecast demand, supported by job creation across chip plants, packaging, and AI data centers.

Analysis

The key market signal is not the margin reset itself, but that Nvidia is still confident enough in demand to defend pricing while absorbing cost inflation. A 200-300 bp gross margin step-down is immaterial if revenue inflects higher; what matters is that management is telling investors the scarcity premium is now being converted into a more durable revenue run-rate. That is supportive for NVDA and, second order, for the tightest parts of the AI supply chain (TSM, ASML, AMAT, KLAC, advanced packaging), because it implies bottlenecks remain demand-driven rather than demand-breaking.

The losers are the buyers underwriting the AI buildout, especially hyperscalers and large platform names where every incremental GPU dollar has to be justified in cloud margin or enterprise monetization. Over 1-3 months, the real catalyst is not this quarter’s print but the next round of capex and data-center commentary: if those guides stall while Nvidia still raises prices, the market will start questioning ROI and software multiple expansion. Falsifiers are simple: a gross margin break below ~71.5%, any sign Blackwell ramps slower than expected, or a capex pullback from MSFT/AMZN/GOOGL/META.

Contrarian angle: the consensus may be treating this as a one-time housekeeping event, when it is also evidence that Nvidia still has enough leverage to reprice the ecosystem. That argues against fading the strength immediately; the more relevant risk is that the stock has to digest a higher bar into the next guidance cycle, not that pricing power has vanished. On a 6-18 month view, if revenue keeps compounding, the multiple can stay elevated even with slightly lower margins, because operating leverage and ecosystem lock-in matter more than a 2-3 point gross margin change.

Key Decisions for Investors

• Buy NVDA on a 3-5% post-earnings pullback; thesis is that the margin reset removes uncertainty while revenue visibility stays intact. Risk/reward is favorable as long as the stock holds above the post-print gap and management does not guide gross margin below ~71.5%.
• Pair trade: long NVDA / short AMD for 1-3 months. The trade expresses that pricing power and supply access remain the differentiators in accelerators; it should work if the market rewards execution over "also-ran" exposure, and fails if AMD shows unexpectedly strong share gains or Nvidia’s Blackwell ramp slips.
• If implied volatility remains elevated, consider a 6-12 month NVDA call spread instead of outright calls. This captures continued re-rating from AI revenue durability while limiting capital at risk if the market decides the margin reset was already fully priced.
• Watch hyperscaler earnings/capex guidance (MSFT, AMZN, GOOGL, META) as the next sector catalyst; if capex accelerates again, add to NVDA and the AI supply chain, but if capex moderates, trim AI beta first rather than chasing the stock higher.