According to the Wall Street Journal, the chipmaker has spent weeks soothing the cocaine nose jobs of Wall Street as they realise its gear is so pricey that competitors can stroll in with cheaper kit and still turn a decent profit. Reports that Google is preparing to flog its in-house tensor processing units have only sharpened that concern.

Nvidia’s shares have picked up slightly this week, although they are still down 12 per cent since the outfit briefly strutted about with a $5 trillion valuation in late October. The Nasdaq composite slipped about two per cent in the same period.

That dip makes Nvidia look oddly cheap at first glance. The stock trades at about 26 times projected earnings for the coming four quarters, close to a five-year low according to FactSet. Those forecasts assume Nvidia’s margins hold up, yet rivals see opportunity in its premium pricing and fancy their chances.

Nvidia clocked more than $110 billion in operating income across the past four quarters, pocketing about 59 cents of operating profit for every dollar of revenue. S&P Global Market Intelligence data show no other chipmaker on the PHLX Semiconductor Index comes close. TSMC managed just under 50 per cent while the index average hovers near 25 per cent.

That haul stems from Nvidia’s 70 per cent annual gross margin, far beyond the roughly 62 per cent it logged in the five years before AI mania broke loose in 2023. Nvidia claimed the jump came from “a significant amount of software and complexity” in its data-centre hardware. Rivals such as Qualcomm, AMD and Marvell sit in the low 50s.

AMD’s margin gap with Nvidia gives the outfit room to undercut Nvidia while lifting its own returns. Its MI450 chips ship next year and have already landed OpenAI. AMD chief executive Lisa Su told analysts last month that more customers are lining up.

Neither Nvidia nor AMD publish set prices because the chips are tuned for big clients, but AMD has vowed to top 35 per cent in annual pro forma operating margins within three to five years compared with 22 per cent now. That promise shows how much slack Nvidia’s premium leaves for rivals to play with.

Google adds fresh hassle. Parent Alphabet generated $151.4 billion in operating cash flow over the past four quarters, the highest among the S&P 500, giving it plenty of ammunition to push its TPUs into the wider market. Winning Meta would be a major score as the Facebook parent devours Nvidia hardware while Mark Zuckerberg chases what he calls “superintelligence”.

Morgan Stanley analyst Joe Moore claimed: “In the near term, Meta using TPUs doesn’t materially affect our viewpoint on Nvidia despite the narrative headwind it creates”. He added that Google still splashes about $20 billion a year on Nvidia hardware.

The cocaine nose jobs of Wall Street remain fixated on Nvidia defending its 70 per cent gross margins even as component costs rise. However, the sheer size of those margins now gives rivals every reason to hack into Nvidia’s once comfortable turf.