Nvidia (NVDA), a leader in the chipmaking industry, raised eyebrows this week with its revenue forecast, which predicted the slowest growth in seven quarters. This has led some to wonder whether the artificial intelligence (AI) boom is losing steam. However, according to Nvidia executives, analysts, and investors, the answer is clear: the demand for AI chips remains as strong as ever.
Strong Demand Despite Slowdown
Nvidia’s shares saw a brief surge of nearly 4% to a record high on Thursday, before experiencing a dip of about 2% amid volatile trading. Competitors in the AI chip space, such as AMD (AMD), Intel (INTC), and Qualcomm (QCOM), also saw minor declines. Despite the market’s reaction, there is no shortage of companies eager to use Nvidia’s superior chips for their AI systems.
The company is selling its chips as fast as its manufacturing partner, Taiwan Semiconductor Manufacturing Co (TSM), can produce them. However, Nvidia’s forecast indicates a slowdown in revenue growth, with supply chain constraints leading to demand exceeding supply for the next few quarters.
Supply Chain Struggles and Production Challenges
Nvidia attributes the expected slowdown to the “law of large numbers,” meaning that after a booming period fueled by AI infrastructure investment, comparisons to last year’s massive growth are becoming increasingly challenging. The launch of OpenAI’s ChatGPT in late 2022 helped fuel this AI investment surge, and analysts expect it to be hard to maintain the same growth rate moving forward.
A key factor contributing to this slowdown is the difficulty in manufacturing Nvidia’s new flagship processor, Blackwell. The chip relies on advanced packaging, a complex manufacturing process that is a bottleneck for both Nvidia and other chip companies. Nvidia’s production timelines have been further delayed by a design flaw in Blackwell, which led to what the company calls a “mask change” to fix the issue. While this has temporarily lowered chip yields, the company expects to ramp up production and improve its yield in the future.
Short-Term Challenges, Long-Term Prospects
Nvidia is likely to face pressure on its margins in the short term as it works to address production challenges. Executives have warned that gross margins could drop into the low-70% range until the production process stabilizes. Despite these short-term hurdles, demand for Nvidia’s chips remains “exceptionally strong,” according to Hendi Susanto, a portfolio manager at Gabelli Funds.
The bottom line is that, while there may be a temporary slowdown due to supply chain constraints and production difficulties, the long-term outlook for Nvidia and its dominance in the AI chip market remains positive. As demand for AI systems continues to rise, Nvidia’s chips are poised to remain in high demand, making it clear that the AI boom is far from over.