Nvidia Is Now Bidding Up the Price of Its Own Most Critical Input
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Nvidia is now bidding up the price of its own most critical input.
Chief Financial Officer Colette Kress named the cause on the call. "Memory scarcity today is being driven in large part by the AI buildout itself." NVIDIA supplies that buildout. The faster it sells, the more expensive its memory gets.
The margin path shows the squeeze. 75% in Q2, guided to 74% in Q3, a trough of 71-72% in Q4. That is on a quarter that did $96.2 billion of revenue, $89 billion of it in Data Centers.
The decision worth grading sits underneath that. Nvidia's supply and capacity commitments went from $119 billion to $279 billion in one quarter, roughly $267 billion of it due by fiscal 2029. Huang more than doubled committed spend against demand he can only see through customer forecasts.
And those customers are funding it out of deteriorating cash flow. Alphabet Inc. posted negative free cash flow of $5.9 billion in Q2, its first since going public. Morgan Stanley and Bank of America both project Amazon turns cash-flow negative across 2026. Meta is forecast to follow during the year.
Kress said customer forecasts point to Nvidia's growth doubling next year, which is roughly 140% against the 70% it can actually supply. That figure holds only for as long as those balance sheets tolerate the spend.
Huang co-founded Nvidia and has run it for more than three decades. We look at that kind of tenure for two things. Whether the board still functions as a check on a commitment this size. And whether his incentives reward the commitment or the revenue it buys.
What would make me wrong is memory capacity easing faster than Nvidia modeled. That turns the trough into a single quarter and the $279 billion into a bargain.
If Alphabet, Amazon and Meta each cut capital spending by a tenth next year, does Huang renegotiate that $279 billion or absorb it?
🔗 Source: Nvidia Earnings Takeaways: Huang Forecasts 70% Fiscal 2028 Revenue Growth, Far Above Estimates
