Nvidia Shareholders Should Brace Themselves for 1 Particular Thing in the Months to Come. Here’s What It Means for the Long-term Picture.

Nvidia (NASDAQ:NVDA) hasn't only delivered exceptional revenue growth in recent years, but the tech giant has also generated enormous profit. For example, in the latest quarter, the company's revenue topped $96 billion, and net income reached $59 billion.

All of this is thanks to a wise bet Nvidia made about a decade ago. The company decided to focus on developing graphics processing units (GPUs) for the high-potential artificial intelligence (AI) industry. These are the workhorses that offer the power needed for key tasks like the training of models. Prior to this, Nvidia's GPUs primarily served the gaming market.

So, quarter after quarter, Nvidia has benefited from the AI boom. Earnings have marched higher as demand for AI infrastructure increased, and this momentum continues. In fact, growth could continue well into the future as AI is applied more frequently to real-world applications -- for this, GPUs and similar chips play a central role.

All of this sounds fantastic. But there may be one cloud in this sunny picture. Nvidia shareholders should brace themselves for one particular thing in the months to come. Let's check out what it means for the long-term picture.

Image source: Getty Images.

Demand for Nvidia's GPUs

First, let's start with the good news. Demand for Nvidia's GPUs continues to roar higher, and on top of that, the company just began production shipments of its latest platform, Vera Rubin. This system represents an exciting turning point for Nvidia as it includes GPUs as well as something new: Nvidia's first stand-alone central processing unit (CPU). CPUs are chips generally found in all computers, and they fuel the actions of AI agents. Agentic AI, involving AI taking steps to address problems on behalf of humans, is seen as the next AI growth driver.

Nvidia aims to be a leader in this space, too, adding to its GPU dominance, and it may be well on the way. The company predicts $20 billion in stand-alone CPU sales this year.

Meanwhile, Nvidia did something it's never done before: It offered guidance for the next fiscal year, citing greater-than-ever visibility. Nvidia predicts revenue growth of 70% for the 2028 fiscal year.

So, where is the cloud in this sunny landscape? Well, Nvidia expects growth to continue, but it may come at a higher price. The company, which has maintained gross margins in the mid-70% range, expects to see lower profit on sales later this year. Nvidia, after delivering a gross margin of 75% in the second quarter, says that gross margin will bottom in the range of 71% to 72% in the fourth quarter. The company predicts the figure will settle at 72% to 73% in the 2028 fiscal year, or the period beginning early next year.

"Extreme pricing conditions"

This is due to "extreme pricing conditions in memory," finance chief Colette Kress said during the company's earnings call last week.

The colossal levels of demand for AI infrastructure -- something that's clearly benefiting Nvidia -- are also driving the memory shortage and memory price increase -- something that's hurting Nvidia and peers.

So, investors should brace themselves for this pattern in the quarters to come. Now, let's consider what it means for the long-term picture. While the memory situation will weigh on profitability on sales, it's important to keep in mind that it's not catastrophic. Gross margin above 70% still is considerably high, and if Nvidia is able to maintain stability around this level, this should be seen as a sign of strength.

As for the long-term, memory chip players are addressing the shortage by adding capacity, and this should boost supply. That doesn't necessarily mean prices will come down -- at least as long as high demand continues. But Nvidia benefits from this demand, and is demonstrating that it can manage higher memory prices by maintaining a high gross margin. Meanwhile, Nvidia may also gain in efficiency as it rolls out new platforms annually.

All of this means that, while any decline in gross margin is disappointing, it's important to put the situation into perspective. Nvidia remains on track to greatly benefit from AI growth in the years to come -- and that makes it a fantastic stock to buy and hold.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.