Dear Reader,
Good morning.
This is Dylan Jovine with Behind the Markets.
Happy Friday.
Today is Friday, February 27th — the last business day of the month.
And today I want to talk about NVIDIA's earnings, because they reveal something very important about where we are in the AI boom.
On the surface, the numbers were extraordinary.
Fourth quarter revenue came in at $68 billion — up 73% from the same quarter last year.
Even more remarkable, earnings were $42 billion.
Think about that for a moment.
Out of $68 billion in revenue, $42 billion went to the bottom line.
That tells you everything you need to know about the economics of this business.
This is not a company burdened by heavy manufacturing costs. This is a company driven by design, intellectual property, and pricing power.
Their gross margins were approximately 75%.
In simple terms, for every dollar of revenue NVIDIA generates, it costs them only about 25 cents to produce their chips.
The rest flows through as profit.
Those are extraordinary margins.
And margins like that tell you two things at once.
First, they confirm NVIDIA's dominant position in AI infrastructure.
But second, they also attract competition.
Because when profit margins reach these levels, competitors inevitably move in to capture a share of those profits.
And we are already seeing that happen.
Companies like AMD are aggressively developing competing chips. Major customers like Meta and OpenAI are actively diversifying their suppliers — not because they want to abandon NVIDIA, but because they want leverage.
They want pricing competition.
Now, here's something even more interesting.
NVIDIA's next-generation Rubin chip architecture is built on core intellectual property from a key partner we've discussed before.
This supplier already dominates nearly the entire global smartphone processor market. And now, their architecture is becoming foundational to the next generation of AI data center chips.
As NVIDIA's data center business continues to grow, this supplier's technology becomes even more deeply embedded in the infrastructure of artificial intelligence.
It's what I call a "second-order winner."
They benefit not just from their own growth — but from NVIDIA's growth as well.
And that creates a powerful compounding effect.
Now, here's the more subtle signal buried in the earnings report.
Year-over-year growth remains explosive.
But sequential growth — quarter over quarter — is beginning to normalize.
Revenue grew approximately 20% compared to the previous quarter.
That's still extraordinary.
But it tells you we are transitioning from the hyper-acceleration phase to the scaling phase.
This is what happens in every major technological revolution.
Early growth is explosive.
Eventually, growth remains strong — but becomes more measured as the base gets larger.
This does not mean the AI boom is ending.
It means it is maturing.
The infrastructure is being built.
The dominant players are establishing their positions.
And the economic beneficiaries — both direct and indirect — are becoming clearer.
From my perspective, this earnings report confirms something we've been discussing for months.
The AI revolution is real.
It is durable.
And it is still in its early stages.
But the nature of the opportunity is evolving.
We are moving from the discovery phase…
to the deployment phase…
to the scaling phase.
And that's when the biggest and most durable fortunes are built.
Anyway, that's what's on my mind today.
Have a wonderful day.
Have a wonderful weekend.
I'll see you Monday.
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