Nvidia, supply constraints are the bottleneck, AI boom continues.

November 21, 2024, 2:36 PM GMT+9

Nvidia, a leading U.S. semiconductor company, announced on the 20th that its revenue forecast for the fourth quarter (November-January) fell short of the high expectations of some market participants, leading to concerns about a downturn in the artificial intelligence (AI) boom. However, according to the company's executives, analysts, and investors, this is just needless worry.
There are many companies that want to build new AI systems using Nvidia's high-performance semiconductors, and Nvidia's sales pace is aligned with the production pace of its manufacturing partner, Taiwan Semiconductor Manufacturing Company (TSMC).
Nvidia's revenue growth rate forecast for November to January, announced on the 20th, is at its lowest level in seven quarters, causing the stock price to fall by 2.5% in after-hours trading.
Due to constraints in the supply chain, Nvidia forecasts that semiconductor demand will exceed supply for several quarters in the 2026 fiscal year. This is due to the complexity of the manufacturing process and underlying issues found in some products this summer.
The latest flagship AI semiconductor from the company, called 'Blackwell,' is composed of multiple chips and requires complex assembly using a process known as advanced packaging.

While TSMC is rapidly expanding its production capacity, packaging remains a bottleneck for semiconductor manufacturers like Nvidia.
Ben Bajarin, CEO of Creative Strategies, noted that due to TSMC's advanced packaging of 'Blackwell' compared to previous products, the pressure is growing. He indicated an outlook that demand will outstrip supply throughout 2025.
In addition, Nvidia's mistake has worsened the issue.
Blackwell had a design flaw, and Nvidia was forced to undergo a process called 'mask change.' CEO Jensen Huang stated that due to this flaw, Blackwell's production yield temporarily decreased.
Nvidia has not disclosed any details about this issue, but complex semiconductors like Blackwell require hundreds of manufacturing steps, sometimes taking several months to produce. In many of these steps, ultraviolet light is projected through a series of complex masks to imprint the design circuit onto a silicon wafer.

Analysts speculate that Nvidia's production schedule was delayed and incurred costs due to this mask change.
Michael Schulman, Chief Investment Officer (CIO) of Running Point Capital, stated, 'There is a risk of bottlenecks worsening rather than improving, potentially affecting revenue estimates negatively.'
Nvidia executives mentioned in a conference call with investors that they have shipped around 13,000 samples of the new semiconductors and forecasted sales for this quarter exceeding initial estimates of several billion dollars.
On the 20th, Mr. Huang explained to Reuters, 'We are currently in the early stages of increasing production, with chances for improving yield always present,' and he mentioned, 'Expanding Blackwell's production from scratch to extremely large levels. Naturally, there are limitations to the production pace dictated by physical laws.'
Increased production is expected to temporarily squeeze the gross profit margin. Nvidia executives warned investors that until production issues are resolved, the company's profit margin may drop by a few percentage points to the high 70s.

Gabelli Funds' portfolio manager, Hendi Susanto, who holds Nvidia shares, stated that the demand for Nvidia's semiconductors is definitely exceptionally strong in the near term, emphasizing that the key is the supply. It depends on how much Nvidia can supply.