Nvidia's extraordinarily high profit margins make it a must-have for long-term investment portfolios, according to a veteran market analyst. Yahoo Finance reported that the semiconductor giant's operating margins have expanded dramatically in recent years, reaching levels rarely seen in the technology sector.
"I don't have any company with operating margins as fat as Nvidia — they're ridiculous," Navellier & Associates founder and chairman Louis Navellier said on Yahoo Finance's Opening Bid podcast, emphasizing why he continues to hold the stock for clients since May 2019. Yahoo Finance analysis shows these margins have increased from 39.9% for the fiscal year ended January 31, 2021, to an impressive 58.1% for the fiscal year ended January 28, 2024.
The extraordinary margin expansion appears set to continue, according to Yahoo Finance, with analysts estimating Nvidia could report an operating margin of 67.5% when it releases earnings on February 26. For 2025, Wall Street expects similar profit margin levels to remain in place despite concerns about potential competition.
Nvidia's commanding position in semiconductor innovation has allowed it to maintain premium pricing power for years, reported Yahoo Finance. This trend has accelerated dramatically during the current AI-driven cycle, led by powerful chips such as Hopper and the upcoming Blackwell architecture.
"Margin expansion creates a lot of earnings surprises," Navellier explained regarding why he's reluctant to sell Nvidia shares. "You want positive revisions. The analysts are notorious for underestimating. And so while the stock is being institutionalized, just want to ride it as long as you can."
Despite a brief challenge earlier this year when China-based DeepSeek raised questions about the AI thesis, Wall Street remains largely bullish on Nvidia ahead of its market-moving earnings report expected Wednesday after market close. The aggressive 2025 capital expenditure plans announced by major technology companies like Amazon and Meta during this earnings season suggest continued strong demand for Nvidia's AI chips.
However, some cautionary signals have emerged in recent weeks. Yahoo Finance data shows Nvidia's first-quarter earnings per share trend has modestly declined over the past 30 days. Additionally, analysts have not raised their 2025 earnings estimates for the company in more than 60 days.
Valuation comparisons suggest Nvidia may actually be relatively inexpensive among AI-focused stocks. According to Yahoo Finance data, Nvidia trades at 29 times forward earnings, while competitors Broadcom and Marvell Technology are valued at 35 times and 41 times respectively. Arm Holdings commands an even higher multiple at 72 times forward earnings.
Not everyone shares the bullish outlook, however. The Bahnsen Group Chief Investment Officer David Bahnsen expressed skepticism during an appearance on Yahoo Finance's Catalysts. "If you compare its earnings multiple to some of the other AI companies, let alone other 'Magnificent Seven' and, of course, other S&P names, it's at an incredible premium," Bahnsen said.
While acknowledging Nvidia has earned its premium valuation, Bahnsen disputed the notion that the company has no competition. "Nobody in their right mind thinks Nvidia is a monopoly," he stated. "There's tons of competition, but all the earnings multiple estimates are based on them never having competition."
As Nvidia Chief Executive Officer Jensen Huang continues to position the company at the forefront of the artificial intelligence revolution, investors will closely watch Wednesday's earnings report for indications of whether the remarkable profit margins can be sustained through 2025 and beyond.
The company's ability to maintain its technological edge while commanding premium prices will be crucial to justifying its current valuation. With AI infrastructure buildouts continuing globally, Nvidia appears well-positioned to capture significant value, though increasing competition may eventually pressure those "ridiculous" margins that have made it such an attractive investment.
