By June Yoon
Publication Date: 2026-03-05 00:01:00
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Nvidia has become an outlier in the chip industry. Its gross profit margin of 75 per cent is closer to that of a luxury brand or software company than a traditional chipmaker.
Even the industry’s top performers have historically operated with gross margins closer to 50 per cent. That gap has become the single most important variable underpinning Nvidia’s valuation. The question is whether it can last.
Nvidia is often described as a chip designer that derives much of its value from its proprietary software and developer platform. That is accurate but incomplete. Nvidia makes its money selling physical chips that must be manufactured in fabrication plants the company does not own.
Nvidia’s most advanced AI chips rely heavily on fabrication by Taiwan Semiconductor Manufacturing Company. Its most profitable products, including the H200, Blackwell and the next-generation Rubin architecture, are made on TSMC’s advanced 4 and 3 nanometre production processes. There is currently no alternative capable of manufacturing those designs at the same scale, performance and yield.
In chipmaking, whoever controls advanced manufacturing has the greatest leverage. TSMC decides how much it charges for each wafer and how much advanced production capacity each customer receives. Nvidia is one of its largest clients. But it is competing for the same scarce…
