About 30 years ago, the Internet began to become widespread and completely changed the way businesses operated. Although it took some time for businesses to fully understand the potential of business-to-business e-commerce and the power of virtual storefronts, the Internet has simply been a game-changer for American businesses.

Since the mid-1990s, Wall Street and investors have been waiting for the next game-changing technology, innovation or trend that will deliver the next leap forward for businesses. Artificial Intelligence (AI) Looks like he answered the call.

Image source: Getty Images.

The appeal of AI-based software and systems is that they can become more proficient at their assigned tasks over time and learn new skills without human intervention. In theory, this gives the technology utility in almost every sector and industry around the world. This probably also explains why PwC analysts estimate that AI will add $15.7 trillion to the global economy by the end of the decade.

Although no public company has benefited more directly from the AI ​​revolution than Nvidia (NASDAQ:NVDA)the catalyst most responsible for its gains risks disappearing in 2025.

The rise of AI has added more than $3 trillion to Nvidia’s valuation

By the end of 2022, Nvidia was a $360 billion technology company that was poised to become a leading company. Today, it is a $3.44 trillion company that arguably considered the most crucial of all technology stocks.

Nvidia’s fortunes have changed thanks to its ultra-popular AI graphics processing units (GPUs). These are actually the brains in enterprise data centers that enable split-second decision-making. Nvidia H100 GPU (commonly known as “Hopper”) controls are latewhile CEO Jensen Huang called the demand for the Blackwell GPU architecture “crazy.”

The laws of supply and demand clearly state that if demand for a good or service exceeds supply, prices will increase until demand decreases. Nvidia’s Hopper chip costs between $30,000 and $40,000, representing a 100% to 300% premium over competing AI GPUs. The ability to sell its GPUs at a higher price has allowed the company to improve its performance. gross margin north of 75%, as of the quarter ended July 28.

Don’t overlook the role played by Nvidia’s CUDA software platformeither. CUDA is the toolkit that developers use to create large language models and get as much computing capability as possible from their Nvidia GPUs. CUDA keeps Nvidia customers contained within its ecosystem of products and services.

The final piece of the puzzle for Nvidia was its ability to land big orders from Wall Street’s most influential companies. At the start of this calendar year, approximately 40% of Nvidia’s net sales could be attributed to Microsoft, Metaplatforms, AmazonAnd Alphabet. There is no better publicity or endorsement than that of America’s largest companies wanting to use your hardware in their AI-accelerated data centers.

But even though Nvidia’s rise has been textbook, I believe its biggest competitive advantage will disappear next year.

Nvidia’s most obvious advantage should disappear in 2025

On the one hand, Nvidia is in no danger of losing its IT superiority. The company’s Hopper and Blackwell GPUs should have no trouble maintaining their computing lead in AI-focused data centers for the foreseeable future.

However, the advantage that Nvidia will bid farewell to in the new year is the scarcity of AI GPUs.

As noted, the demand for AI-accelerated chips has been off the charts. Unfortunately, the supply of these chips has been limited. Global leader in chip manufacturing Semiconductor manufacturing in Taiwan (NYSE:TSM) has been increasing its chip-on-wafer-on-substrate (CoWoS) capacitywhich is a necessity for high-bandwidth memory packaging needed in AI-accelerated data centers. Throughout 2023 and most of 2024, this increase in CoWoS capacity simply has not been enough to satisfy demand. With overwhelming orders, Nvidia enjoys supernatural pricing power.

Image source: Getty Images.

However, 2025 appears to be the perfect storm that will derail the AI ​​GPU scarcity and pricing power that has worked in Nvidia’s favor.

Based on a Taiwanese media report, as well as a forecast from analyst Zhan Jiahong of Morgan StanleyTaiwan Semiconductor appears to be ahead of schedule in its efforts to increase CoWoS packaging capacity to 80,000 wafers per month. Rather than achieving this feat in 2026, as planned, it could take place a full year ahead of schedule. This means more powerful GPUs are available across the board.

Another thing to consider is that Nvidia is no longer the only rodeo in town. Advanced microdevices is ramping up production of its MI300X GPUs and recently unveiled its next-generation MI325X chip, which it intends to begin producing before the end of this year. As external competition intensifies, AI-GPU shortage will decrease.

It’s not just external competitors that have the ability to put pressure on Nvidia’s pricing power. The four “Magnificent Seven” companies that account for about 40% of its net revenue are all developing AI GPUs for use in their respective data centers. Although these in-house developed chips cannot match the computing potential of Nvidia hardware, they are considerably cheaper and more accessible. In other words, there is a value proposition that should, in the coming quarters and years, drive Microsoft, Meta, Amazon and Alphabet to choosing their own AI GPUs over Nvidia’s.

This perfect storm will steadily increase the availability of AI GPUs in 2025, reducing the stratospheric pricing power used by Nvidia to increase its gross margin. When this competitive advantage of Nvidia disappears, it could be almost impossible for its shares to maintain their near parabolic rise since the beginning of 2023.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Sean Williams holds positions at Alphabet, Amazon and Meta Platforms. The Motley Fool holds positions and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.