Deep Dive: Gross Margin vs Net Margin — What the Difference Tells Investors About a Company's True Profitability
When investors compare two companies in the same industry, raw profit figures rarely tell the whole story. A company generating $10 billion in gross profit might actually be less profitable than a competitor earning $5 billion — it all depends on margins. Gross margin and net margin are two of the most fundamental profitability metrics in financial analysis, yet the gap between them reveals far more about a business than either number alone. Consider two real examples from the current market: NVIDIA reports a gross margin of 73.4% and a net margin of 56.0%, while Amazon posts a gross margin of 48.5% but a net margin of just 9.9%. That 38.6-percentage-point spread at Amazon versus NVIDIA's 17.4-point spread tells investors something critical about each company's cost structure, operating leverage, and where profits actually go. Understanding what drives these differences — and what they mean for stock valuations — is one of the most practical skills an investor can develop. This guide breaks down both metrics with real financial data from companies spanning technology, retail, healthcare, and energy. You will learn not just the formulas, but how to interpret margin profiles across sectors, spot warning signs in margin trends, and use the gross-to-net spread as a diagnostic tool for evaluating businesses.