Nvidia's Margin Pressure Fuels Micron's Revenue Growth

Nvidia's Q2 2027 earnings call highlighted a significant increase in revenue, up 106% year-over-year, and data center sales jumped 117%. CFO Colette Kress attributed this growth to rising market demand for artificial intelligence accelerators, which is outpacing manufacturing capacity.

However, the gross margin took a hit, dropping from 72.5% in Q2 2026 to 75% in Q2 2027. This trend is expected to continue, with Q3 margins dipping to 74% and Q4 hitting a trough of 71%-72%. The recovery in fiscal 2028 is forecasted at around 72-73%, a 3.5-point drop.

The explanation for this margin pressure lies in the increasing cost of high-bandwidth memory, which now accounts for 30-40% of an AI accelerator's build cost, up from under 20% two generations ago. The three major suppliers of this component - Samsung, SK Hynix, and Micron - are struggling to keep up with demand.

Nvidia is working closely with these suppliers to expand capacity, but the extra supply will not arrive immediately. Meanwhile, Nvidia's cost of revenue is becoming increasingly a payment to its suppliers, which means the cash leaving Nvidia's gross margin line will land on someone else's income statement - namely Micron's.