This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Nvidia (NASDAQ: NVDA) has already delivered spectacular gains for investors, advancing more than 1,400% over the past five years. This is thanks to the company's dominant position in the artificial intelligence (AI) revolution and the resulting explosion in earnings growth. Quarter after quarter, Nvidia's revenue has advanced in the double or triple digits and reached record levels.
In recent times, though, against a backdrop of import tariff uncertainties and restrictions on AI chip exports to China, investors have worried about growth ahead, which has weighed on Nvidia's stock, bringing it down 29% from the start of the year to its lowest point in April.
Today, along with the rest of the market, Nvidia has rebounded from those lows. This comes amid optimism that the tariff picture won't be as dark as originally expected and as tech customers continue to spend big on Nvidia's products and services. Now, my prediction is that Nvidia's positive momentum may not be over, and the stock will soar in 2025 thanks to one particular number. Let's explore this further.
Why Nvidia has skyrocketed
So, first, a quick look at why Nvidia shares have skyrocketed over the past several years. The company is known for its graphics processing units (GPUs), high-powered chips with the ability to handle many tasks simultaneously. They primarily served the gaming market many years ago, but then Nvidia recognized their broad potential and expanded their use into other areas -- and AI stood out as a market where GPUs could shine.
In fact, GPUs are central to the most important AI tasks, such as the training and inference of large language models (LLMs), so these models can then go on to do their job of solving complex problems. Nvidia also built out an entire ecosystem of supporting products and services, and all of this has resulted in mind-boggling growth. In the recent fiscal year, revenue soared 114% to $130 billion.
This continued into the recent quarter, and the earnings numbers have proven that Nvidia's customers continue to pour investments into the company's products. Revenue advanced 69% to $44 billion during the period, and Nvidia noted a significant increase in demand for inference -- the "thinking" process LLMs go through to tackle questions and problems.
Demand from major customers
Reports from Nvidia customers, such as Meta Platforms and Alphabet, support this positive earnings trend we saw in Nvidia's fiscal 2026 first quarter. These players have said in recent times that AI remains a priority, and they will continue to invest significantly in it -- Meta even increased its capital spending forecast for the year.
All of this supports the idea of Nvidia's stock market gains this year. But one number in particular should encourage investors to get in on Nvidia -- and it could help the stock soar in the months ahead. This is a number that reflects the company's high profitability on sales. I'm talking about Nvidia's gross margin. The company has maintained a gross margin above 70% in recent quarters, with it even reaching into the mid-70% range.
Earlier this year, Nvidia predicted that first-quarter gross margin would fall to the low-70% range amid the launch of its Blackwell architecture. (Launches involve extra costs, and the Blackwell rollout is particularly complex due to all its features and that it's customizable.) In the recent quarter, Nvidia met its goal, with gross margin settling at 71.3%, excluding the impact of a $1 billion charge related to chips meant for export to China.
(If we include the impact of the charge, gross margin on a non-GAAP (non-generally accepted accounting process) basis was 61% and about 60% on a GAAP basis.)
Expanding gross margin
From here, Nvidia expects gross margins of 71.8% and 72% in the second quarter, on a GAAP and non-GAAP basis, respectively. The company says that Blackwell will drive continued progress, with forecasts of gross margin in the mid-70% range by later this year.
So, Nvidia has delivered strong profitability and aims to continue doing so. Of course, the company still faces some headwinds, particularly U.S. restrictions on chip exports to China. If this situation worsens, it could put the brakes on stock performance, at least in the near term. It will be important to watch how this story plays out.
But even with that challenge in mind, I remain optimistic, considering Nvidia's impressive profitability on sales over time. And the ongoing demand for its products and services should keep that momentum on track. That's why I predict that, thanks to Nvidia's solid level of profitability, the stock will soar in 2025.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
