There’s an adage in Silicon Valley: Hardware is hard. And expensive. And time-consuming. That’s the case even when you’re a company that’s really good at it — like Nvidia Corp., whose market value has grown to $3 trillion thanks to its extraordinary prowess in the trickiest hardware challenge today: building cutting-edge chips for artificial intelligence.
As far as I’m aware, Wall Street doesn’t have that adage. Or any adages, really, when it comes to changing the world with technology, other than maybe: Growth is good, and those boffins out West better find ways to keep the good times coming, and coming fast.
So when Nvidia confirmed on Wednesday rumors that its new Blackwell chip had hit some production snags, traders reacted poorly — pushing shares down as much as 8.4% after hours. Also hurting Nvidia was its mere 122% year-on-year revenue growth — apparently not enough — and a forecast that, while also beating estimates, clearly wasn’t good enough, either. Honestly, it’s as if Chief Executive Officer Jensen Huang wasn’t even trying.
It’s become a little silly. Bloomberg Intelligence analysts have it right when they say Nvidia is up against “lofty and unsustainable expectations.” The Blackwell delay is a temporary blip, and the company’s overall margins are still enormous, thanks to the sky-high demand that will continue for many months. Tech companies are still clamoring for Nvidia chips like Black Friday shoppers pursuing a new TV. That Blackwell is a little behind schedule is not an issue. “They’ll buy whatever Nvidia’s selling,” said Gil Luria of D.A. Davidson.
As Huang told investors and then spoke about at length in an exclusive interview with Bloomberg’s Ed Ludlow, he has preorders for Blackwell coming out of his ears. The production issue, now sorted, was a problem with the manufacturing process rather than the chip itself. That’s a significant distinction — this was no back-to-the-drawing-board kind of hiccup. Snags happen, especially when a company has suddenly accelerated its production schedule, as Nvidia has, pledging to now update its flagship hardware at least once a year. Shipping will ramp up at the end of Nvidia’s fourth quarter (November through January) and into the next. “We’re going to have a great next year as well,” Huang said, and I wouldn’t doubt him.
Now if investors want something actually worth worrying about, they should look further down the line. They should question what happens when Nvidia’s biggest customers — hyperscalers like Amazon.com Inc., Alphabet Inc.’s Google and just a few others — can better satisfy more of their own hardware needs with their own components rather than Nvidia’s. Huang said these companies now make up 45% of Nvidia’s customer base. That’s a vulnerability however you spin it.
Shareholders might also want to question the more existential problem of what might happen if investment returns continue to elude top AI initiatives. Mark Zuckerberg admitted that Meta Platforms Inc. was erring on the side of overinvesting when it came to AI-related expenditures. There’s a scenario where it and other hyperscalers, saddled with way more server capacity than they need, suddenly find little reason to do much business with Nvidia at all. (I’m somewhat reminded of Amazon during the pandemic, desperately buying any warehouse space it could get its hands on. The overexuberance cost the executive in charge his job and had the company closing plants and canceling construction projects left and right.)
When pressed on the ROI jitters by analysts on Wednesday’s earnings call, Huang had little to say. But let’s face it, these aren’t 2024 problems. They’re probably not really 2025 problems, either. Even if AI and its potential has been drastically overhyped, it will likely take many more billions spent on Nvidia chips before we find out. Until then, investors mustn’t overreact to the inevitable bumps in the road. Hardware is hard — though I suppose keeping Wall Street happy might be even harder.
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