{ "generatedAt": "2026-10-22T18:36:31Z", "url": "https://deepstack.ltd/theses/software-gross-margin-compression-vs-chip-margins/", "disclaimer": "Analysis and opinion, not investment advice.", "id": "software-gross-margin-compression-vs-chip-margins", "number": 49, "question": "Will large software firms' gross margins drop a point or more by Q3 2027 while Nvidia's stays at or above 70%?", "dek": "The idea: AI inference costs are climbing faster than software revenue, squeezing software profitability while chipmakers keep their fat margins, moving profit upstream to silicon.", "family": "T16", "subthesis": "T16.03", "sector": "AI.SEMI", "subsectors": [ "AI.SEMI.GPU", "AI.APP.SAAS", "AI.CLOUD.HYPER", "AI.MODEL.ECON" ], "relatedParts": [ 12 ], "approvedAt": "2026-10-22T01:56:07Z", "sectorName": "Semiconductors & Compute Silicon", "api": "https://deepstack.ltd/api/v1/theses/software-gross-margin-compression-vs-chip-margins.json", "sides": [ { "id": "yes", "label": "Margin migrates to chips and power", "summary": "Yes means a basket of major enterprise software companies sees its combined subscription and software gross margin fall by at least one percentage point year over year by the quarter nearest Q3 2027, even as Nvidia's GAAP gross margin holds at 70% or higher. Inference costs rise faster than the revenue AI features bring in, while chip supply stays tight enough for Nvidia to keep strong pricing power. Two workloads cannot share the same GPU-hour or megawatt, so as usage grows the scarce compute and power layer captures the rent rather than the software layer.", "voices": [ { "name": "Conestoga Capital Advisors LLC", "entity": null, "claim": "Chipmakers and capital equipment providers serving AI infrastructure demands significantly outperform software companies, which face slower enterprise IT budgets, elongated sales cycles, and cautious spending by smaller businesses. Software has…", "date": "2026-08-22", "url": "https://fiscal.ai/fund-letters/conestoga-capital-advisors-llc-q3-2025-fscl_document_3SQR8VZE589" }, { "name": "Brian Albrecht", "entity": null, "claim": "Two workloads cannot use the same GPU-hour or megawatt, so as intelligence gets copied users bid harder for compute and electricity; the Ricardian rent lands on the scarce complement rather than on the model.", "date": "2026-07-09", "url": "https://www.economicforces.xyz/p/where-the-returns-to-ai-go" }, { "name": "Kris", "entity": "https://deepstack.ltd/people/kris/", "claim": "Bottleneck rent transfer from AI buyers to chipmakers", "date": "2026-06-28", "url": "https://www.potentialmultibaggers.com/p/the-first-100k-is-a-bitch" }, { "name": "Artisan Partners", "entity": "https://deepstack.ltd/people/artisan-partners/", "claim": "Expanding AI capabilities sent software shares tumbling as investors reassessed business models, competitive positioning and long-term monetization potential. At the same time, leadership within AI shifted toward infrastructure-oriented segments…", "date": "2026-03-31", "url": "https://fiscal.ai/fund-letters/artisan-partners-q1-2026-fscl_document_8HSZ6QGJ438" }, { "name": "Michael Spencer", "entity": "https://deepstack.ltd/people/michael-spencer/", "claim": "Because each inference by an AI model costs measurable compute resources, companies running these models become dependents on the infrastructure layer. Whether through GPU purchases from Nvidia or cloud services from AWS/GCP/Azure, the economics…", "date": "2023-11-14", "url": "https://www.ai-supremacy.com/p/is-big-tech-monopolizing-the-ai-boom" } ] }, { "id": "no", "label": "Software margins hold or Nvidia's slips below 70%", "summary": "No means either software margins hold steady or improve, or Nvidia's margin slips below 70%, or both. This could happen if inference costs per unit fall faster than usage grows, letting software firms absorb AI costs without hurting profitability, consistent with enterprises shifting spending toward providers with the best cost structure and efficiency. It could also happen as non-technology sectors move past the infrastructure build-out and reorganize around application-layer products that keep more value inside software. Either outcome would undercut the story that profit is shifting from software makers to chip suppliers.", "voices": [ { "name": "Michael Spencer", "entity": "https://deepstack.ltd/people/michael-spencer/", "claim": "As businesses spend more on AI tokens and evaluate suppliers on product execution and cost efficiency rather than raw model power, enterprises shift spending toward the provider with the best cost structure, product-market fit, and credibility.…", "date": "2026-05-28", "url": "https://www.ai-supremacy.com/p/what-if-there-is-only-one-major-ai-winner-2026-ipo" }, { "name": "Vltava Fund", "entity": null, "claim": "Following the historical pattern of railroads, electrification, and the internet, an initial infrastructure build-out phase precedes a later phase in which non-technology sectors leverage the new capability to reorganize their operations and…", "date": "2026-04-01", "url": "https://fiscal.ai/fund-letters/vltava-fund-q1-2026-fscl_document_2MUE7NPC486" } ] } ], "tests": [ { "id": "th049-t01", "part": null, "thesis": 49, "slug": "software-gross-margin-compression-vs-chip-margins", "when": "November 18, 2026", "whenLabel": "Nov 18, 2026", "date": "2026-11-18", "precision": "day", "event": "NVIDIA, gross margin, quarter ended October 25, 2026: whether it comes in at or above 70%.", "status": "pending", "resultId": null, "sameAs": null, "stage": "pre", "callExpects": "yes", "callExpectsBy": "Desk Editor (level A)", "callExpectsAt": "2026-10-22T03:45:00Z", "callProbability": 84, "callProbabilityAt": "2026-10-22T03:45:00Z", "callProbabilityHistory": [], "source": { "kind": "thesis", "ref": "tests[0].date", "url": null }, "resolver": { "kind": "earnings", "symbol": "NVDA", "rule": "Divide the gross profit by the revenue that Nvidia reports for the quarter ended October 25, 2026 in its 10-Q or 10-K filing on SEC EDGAR. The answer is yes if the ratio is at or above 70.0%; no if it is below 70.0%.", "question": "Did the gross profit of Nvidia for the quarter ended October 25, 2026 come to at or above 70.0% of its revenue?", "source": { "label": "SEC EDGAR, XBRL company facts of Nvidia (Forms 10-Q and 10-K)", "url": "https://data.sec.gov/api/xbrl/companyfacts/CIK0001045810.json" }, "ambiguity": "If Nvidia has not filed by December 11, 2026, or a filing restates a period the rule reads, the test is inconclusive, and the Result says what was read and what was missing.", "specState": "approved", "specVersion": 1, "specUpdatedOn": "2026-10-22", "specHistory": [ { "version": 1, "date": "2026-10-22", "reason": "First specification.", "by": "Desk Editor (level A)" } ], "callExpects": "yes", "format": "ladder", "group": "th049-nvda-gross-margin", "threshold": 70, "direction": "above", "unit": "%", "think": { "baseRate": "NVIDIA's gross margin was 75.0% for the quarter ended July 26, 2026, by its filing on SEC EDGAR.", "outsideView": "A year earlier, for the quarter ended July 27, 2025, the same line read 72.4%, so the rungs sit on the last print.", "wouldChange": "A change in product mix, a one-time charge, or a reclassified line would move the reading." } }, "url": "https://deepstack.ltd/docket/#test-th049-t01", "storyUrl": "https://deepstack.ltd/theses/software-gross-margin-compression-vs-chip-margins/#tests", "resultUrl": null, "machines": [ { "model": "claude-opus-5", "p": 93, "at": "2026-10-22T03:40:02Z" }, { "model": "deepseek-reasoner", "p": 87, "at": "2026-10-22T03:40:17Z" } ], "readers": null }, { "id": "th049-t02", "part": null, "thesis": 49, "slug": "software-gross-margin-compression-vs-chip-margins", "when": "November 18, 2026", "whenLabel": "Nov 18, 2026", "date": "2026-11-18", "precision": "day", "event": "NVIDIA, gross margin, quarter ended October 25, 2026: whether it comes in at or above 73%.", "status": "pending", "resultId": null, "sameAs": null, "stage": "pre", "callExpects": "yes", "callExpectsBy": "Desk Editor (level A)", "callExpectsAt": "2026-10-22T03:45:00Z", "callProbability": 68, "callProbabilityAt": "2026-10-22T03:45:00Z", "callProbabilityHistory": [], "source": { "kind": "thesis", "ref": "tests[1].date", "url": null }, "resolver": { "kind": "earnings", "symbol": "NVDA", "rule": "Divide the gross profit by the revenue that Nvidia reports for the quarter ended October 25, 2026 in its 10-Q or 10-K filing on SEC EDGAR. The answer is yes if the ratio is at or above 73.0%; no if it is below 73.0%.", "question": "Did the gross profit of Nvidia for the quarter ended October 25, 2026 come to at or above 73.0% of its revenue?", "source": { "label": "SEC EDGAR, XBRL company facts of Nvidia (Forms 10-Q and 10-K)", "url": "https://data.sec.gov/api/xbrl/companyfacts/CIK0001045810.json" }, "ambiguity": "If Nvidia has not filed by December 11, 2026, or a filing restates a period the rule reads, the test is inconclusive, and the Result says what was read and what was missing.", "specState": "approved", "specVersion": 1, "specUpdatedOn": "2026-10-22", "specHistory": [ { "version": 1, "date": "2026-10-22", "reason": "First specification.", "by": "Desk Editor (level A)" } ], "callExpects": "yes", "format": "ladder", "group": "th049-nvda-gross-margin", "threshold": 73, "direction": "above", "unit": "%", "think": { "baseRate": "NVIDIA's gross margin was 75.0% for the quarter ended July 26, 2026, by its filing on SEC EDGAR.", "outsideView": "A year earlier, for the quarter ended July 27, 2025, the same line read 72.4%, so the rungs sit on the last print.", "wouldChange": "A change in product mix, a one-time charge, or a reclassified line would move the reading." } }, "url": "https://deepstack.ltd/docket/#test-th049-t02", "storyUrl": "https://deepstack.ltd/theses/software-gross-margin-compression-vs-chip-margins/#tests", "resultUrl": null, "machines": [ { "model": "claude-opus-5", "p": 80, "at": "2026-10-22T03:40:21Z" }, { "model": "deepseek-reasoner", "p": 68, "at": "2026-10-22T03:40:38Z" } ], "readers": null }, { "id": "th049-t03", "part": null, "thesis": 49, "slug": "software-gross-margin-compression-vs-chip-margins", "when": "November 18, 2026", "whenLabel": "Nov 18, 2026", "date": "2026-11-18", "precision": "day", "event": "NVIDIA, gross margin, quarter ended October 25, 2026: whether it comes in at or above 76%.", "status": "pending", "resultId": null, "sameAs": null, "stage": "pre", "callExpects": "no", "callExpectsBy": "Desk Editor (level A)", "callExpectsAt": "2026-10-22T03:45:00Z", "callProbability": 30, "callProbabilityAt": "2026-10-22T03:45:00Z", "callProbabilityHistory": [], "source": { "kind": "thesis", "ref": "tests[2].date", "url": null }, "resolver": { "kind": "earnings", "symbol": "NVDA", "rule": "Divide the gross profit by the revenue that Nvidia reports for the quarter ended October 25, 2026 in its 10-Q or 10-K filing on SEC EDGAR. The answer is yes if the ratio is at or above 76.0%; no if it is below 76.0%.", "question": "Did the gross profit of Nvidia for the quarter ended October 25, 2026 come to at or above 76.0% of its revenue?", "source": { "label": "SEC EDGAR, XBRL company facts of Nvidia (Forms 10-Q and 10-K)", "url": "https://data.sec.gov/api/xbrl/companyfacts/CIK0001045810.json" }, "ambiguity": "If Nvidia has not filed by December 11, 2026, or a filing restates a period the rule reads, the test is inconclusive, and the Result says what was read and what was missing.", "specState": "approved", "specVersion": 1, "specUpdatedOn": "2026-10-22", "specHistory": [ { "version": 1, "date": "2026-10-22", "reason": "First specification.", "by": "Desk Editor (level A)" } ], "callExpects": "no", "format": "ladder", "group": "th049-nvda-gross-margin", "threshold": 76, "direction": "above", "unit": "%", "think": { "baseRate": "NVIDIA's gross margin was 75.0% for the quarter ended July 26, 2026, by its filing on SEC EDGAR.", "outsideView": "A year earlier, for the quarter ended July 27, 2025, the same line read 72.4%, so the rungs sit on the last print.", "wouldChange": "A change in product mix, a one-time charge, or a reclassified line would move the reading." } }, "url": "https://deepstack.ltd/docket/#test-th049-t03", "storyUrl": "https://deepstack.ltd/theses/software-gross-margin-compression-vs-chip-margins/#tests", "resultUrl": null, "machines": [ { "model": "claude-opus-5", "p": 40, "at": "2026-10-22T03:40:42Z" }, { "model": "deepseek-reasoner", "p": 27, "at": "2026-10-22T03:40:56Z" } ], "readers": null }, { "id": "th049-t04", "part": null, "thesis": 49, "slug": "software-gross-margin-compression-vs-chip-margins", "when": "November 18, 2026", "whenLabel": "Nov 18, 2026", "date": "2026-11-18", "precision": "day", "event": "NVIDIA, revenue growth from a year earlier, quarter ended October 25, 2026: whether it comes in at or above 80%.", "status": "pending", "resultId": null, "sameAs": null, "stage": "pre", "callExpects": "yes", "callExpectsBy": "Desk Editor (level B)", "callExpectsAt": "2026-10-22T03:45:00Z", "callProbability": 72, "callProbabilityAt": "2026-10-22T03:45:00Z", "callProbabilityHistory": [], "source": { "kind": "thesis", "ref": "tests[3].date", "url": null }, "resolver": { "kind": "earnings", "symbol": "NVDA", "rule": "Compare the revenue that Nvidia reports for the quarter ended October 25, 2026 with the quarter ended October 26, 2025, in its 10-Q or 10-K filing on SEC EDGAR. The answer is yes if growth is at or above 80.0%; no if it is below 80.0%.", "question": "Did the revenue of Nvidia for the quarter ended October 25, 2026 grow at or above 80.0% from the quarter ended October 26, 2025?", "source": { "label": "SEC EDGAR, XBRL company facts of Nvidia (Forms 10-Q and 10-K)", "url": "https://data.sec.gov/api/xbrl/companyfacts/CIK0001045810.json" }, "ambiguity": "If Nvidia has not filed by December 11, 2026, or a filing restates a period the rule reads, the test is inconclusive, and the Result says what was read and what was missing.", "specState": "approved", "specVersion": 1, "specUpdatedOn": "2026-10-22", "specHistory": [ { "version": 1, "date": "2026-10-22", "reason": "First specification.", "by": "Desk Editor (level B)" } ], "callExpects": "yes", "format": "ladder", "group": "th049-nvda-revenue-yoy", "threshold": 80, "direction": "above", "unit": "%", "think": { "baseRate": "NVIDIA's revenue growth from a year earlier was 105.9% for the quarter ended July 26, 2026, by its filing on SEC EDGAR.", "outsideView": "The year-earlier quarter is not on the same concept in the filings, so the rungs sit on the last print alone.", "wouldChange": "The results-calendar consensus for the quarter ended October 25, 2026 implies 90.9%, and the middle rung is centred there." } }, "url": "https://deepstack.ltd/docket/#test-th049-t04", "storyUrl": "https://deepstack.ltd/theses/software-gross-margin-compression-vs-chip-margins/#tests", "resultUrl": null, "machines": [ { "model": "claude-opus-5", "p": 11, "at": "2026-10-22T03:41:01Z" }, { "model": "deepseek-reasoner", "p": 22, "at": "2026-10-22T03:41:27Z" } ], "readers": null }, { "id": "th049-t05", "part": null, "thesis": 49, "slug": "software-gross-margin-compression-vs-chip-margins", "when": "November 18, 2026", "whenLabel": "Nov 18, 2026", "date": "2026-11-18", "precision": "day", "event": "NVIDIA, revenue growth from a year earlier, quarter ended October 25, 2026: whether it comes in at or above 90%.", "status": "pending", "resultId": null, "sameAs": null, "stage": "pre", "callExpects": "either", "callExpectsBy": "Desk Editor (level B)", "callExpectsAt": "2026-10-22T03:45:00Z", "callProbability": 52, "callProbabilityAt": "2026-10-22T03:45:00Z", "callProbabilityHistory": [], "source": { "kind": "thesis", "ref": "tests[4].date", "url": null }, "resolver": { "kind": "earnings", "symbol": "NVDA", "rule": "Compare the revenue that Nvidia reports for the quarter ended October 25, 2026 with the quarter ended October 26, 2025, in its 10-Q or 10-K filing on SEC EDGAR. The answer is yes if growth is at or above 90.0%; no if it is below 90.0%.", "question": "Did the revenue of Nvidia for the quarter ended October 25, 2026 grow at or above 90.0% from the quarter ended October 26, 2025?", "source": { "label": "SEC EDGAR, XBRL company facts of Nvidia (Forms 10-Q and 10-K)", "url": "https://data.sec.gov/api/xbrl/companyfacts/CIK0001045810.json" }, "ambiguity": "If Nvidia has not filed by December 11, 2026, or a filing restates a period the rule reads, the test is inconclusive, and the Result says what was read and what was missing.", "specState": "approved", "specVersion": 1, "specUpdatedOn": "2026-10-22", "specHistory": [ { "version": 1, "date": "2026-10-22", "reason": "First specification.", "by": "Desk Editor (level B)" } ], "callExpects": "either", "format": "ladder", "group": "th049-nvda-revenue-yoy", "threshold": 90, "direction": "above", "unit": "%", "think": { "baseRate": "NVIDIA's revenue growth from a year earlier was 105.9% for the quarter ended July 26, 2026, by its filing on SEC EDGAR.", "outsideView": "The year-earlier quarter is not on the same concept in the filings, so the rungs sit on the last print alone.", "wouldChange": "The results-calendar consensus for the quarter ended October 25, 2026 implies 90.9%, and the middle rung is centred there." } }, "url": "https://deepstack.ltd/docket/#test-th049-t05", "storyUrl": "https://deepstack.ltd/theses/software-gross-margin-compression-vs-chip-margins/#tests", "resultUrl": null, "machines": [ { "model": "claude-opus-5", "p": 8, "at": "2026-10-22T03:41:32Z" }, { "model": "deepseek-reasoner", "p": 10, "at": "2026-10-22T03:41:44Z" } ], "readers": null }, { "id": "th049-t06", "part": null, "thesis": 49, "slug": "software-gross-margin-compression-vs-chip-margins", "when": "November 18, 2026", "whenLabel": "Nov 18, 2026", "date": "2026-11-18", "precision": "day", "event": "NVIDIA, revenue growth from a year earlier, quarter ended October 25, 2026: whether it comes in at or above 100%.", "status": "pending", "resultId": null, "sameAs": null, "stage": "pre", "callExpects": "no", "callExpectsBy": "Desk Editor (level B)", "callExpectsAt": "2026-10-22T03:45:00Z", "callProbability": 28, "callProbabilityAt": "2026-10-22T03:45:00Z", "callProbabilityHistory": [], "source": { "kind": "thesis", "ref": "tests[5].date", "url": null }, "resolver": { "kind": "earnings", "symbol": "NVDA", "rule": "Compare the revenue that Nvidia reports for the quarter ended October 25, 2026 with the quarter ended October 26, 2025, in its 10-Q or 10-K filing on SEC EDGAR. The answer is yes if growth is at or above 100.0%; no if it is below 100.0%.", "question": "Did the revenue of Nvidia for the quarter ended October 25, 2026 grow at or above 100.0% from the quarter ended October 26, 2025?", "source": { "label": "SEC EDGAR, XBRL company facts of Nvidia (Forms 10-Q and 10-K)", "url": "https://data.sec.gov/api/xbrl/companyfacts/CIK0001045810.json" }, "ambiguity": "If Nvidia has not filed by December 11, 2026, or a filing restates a period the rule reads, the test is inconclusive, and the Result says what was read and what was missing.", "specState": "approved", "specVersion": 1, "specUpdatedOn": "2026-10-22", "specHistory": [ { "version": 1, "date": "2026-10-22", "reason": "First specification.", "by": "Desk Editor (level B)" } ], "callExpects": "no", "format": "ladder", "group": "th049-nvda-revenue-yoy", "threshold": 100, "direction": "above", "unit": "%", "think": { "baseRate": "NVIDIA's revenue growth from a year earlier was 105.9% for the quarter ended July 26, 2026, by its filing on SEC EDGAR.", "outsideView": "The year-earlier quarter is not on the same concept in the filings, so the rungs sit on the last print alone.", "wouldChange": "The results-calendar consensus for the quarter ended October 25, 2026 implies 90.9%, and the middle rung is centred there." } }, "url": "https://deepstack.ltd/docket/#test-th049-t06", "storyUrl": "https://deepstack.ltd/theses/software-gross-margin-compression-vs-chip-margins/#tests", "resultUrl": null, "machines": [ { "model": "claude-opus-5", "p": 3, "at": "2026-10-22T03:41:48Z" }, { "model": "deepseek-reasoner", "p": 8, "at": "2026-10-22T03:41:55Z" } ], "readers": null } ] }