By Stephen Nellis and Aditya Soni
SAN FRANCISCO/BENGALURU (Reuters) – Nvidia's earnings forecast on Wednesday disappointed Wall Street, raising questions about whether the artificial intelligence boom is slowing. But the answer, according to Nvidia (NASDAQ ) executives, analysts and investors, is a resounding no.
Shares of the chipmaker fell more than 3% in premarket trading Thursday, while peers Advanced Micro Devices (NASDAQ , Intel (NASDAQ ) and Qualcomm (NASDAQ fell between 0.8% and 1.4%.
There's no shortage of companies eager to create new ai systems using Nvidia's superior chips, and the world's largest publicly traded company is selling them as fast as its chip manufacturing contractor Taiwan Semiconductor Manufacturing Co (TSMC) can make them .
US-listed shares of TSMC fell 1.7% before the bell rang.
Nvidia on Wednesday forecast its slowest revenue growth in seven quarters and said supply chain constraints would lead to demand for its chips outpacing supply for several quarters in fiscal 2026.
Making these chips is difficult and a defect found in one of their chips over the summer doesn't help.
Nvidia's new flagship chip, called Blackwell, is actually made up of multiple chips that must be glued together in a complex process the chip industry calls advanced packaging. As TSMC races to expand capacity, packaging remains a bottleneck for Nvidia and other chip companies.
“Blackwell adds more advanced packaging from TSMC than previous chips, which adds a problem,” said Ben Bajarin, CEO and principal analyst at research firm Creative Strategies. He expects Nvidia to have more demand than it can meet throughout 2025.
Nvidia's mistakes have exacerbated the problems.
Blackwell's design flaw forced Nvidia to undertake what it calls a “remasking.” CEO Jensen Huang said the flaw, which has since been fixed, reduced the yield of Blackwell chips, which is the proportion of chips that come off the manufacturing line fully functional.
While Nvidia never provided further details about the flaw, complex chips like Blackwell can take months to produce because they require hundreds of manufacturing steps. Many of these steps involve shining ultraviolet light through a series of complex masks to project the image of a chip's circuitry onto a silicon wafer, a process similar to printing the chip.
The skin change appears to have delayed Nvidia's production timelines and cost it money, analysts said.
“There is a risk that bottlenecks will get worse rather than better, and that could hurt revenue projections,” said Michael Schulman, chief investment officer at Running Point Capital.
During a conference call with investors, Nvidia executives said the company has shipped about 13,000 samples of its new chip and expects to beat its initial estimates that it would sell several billion dollars this quarter.
“We are at the beginning of our production ramp, which always brings opportunities to improve performance,” Huang told Reuters on Wednesday. “We're taking Blackwell from zero to something extremely large. By definition, the laws of physics would say there's a limit to how fast it can be scaled up.”
In the short term, increased production is expected to pressure gross margins.
Nvidia executives warned investors that the company's margins would sink several percentage points to the low 70% range until production issues are resolved.
Hendi Susanto, portfolio manager at Gabelli Funds, which owns Nvidia shares, said there was no doubt that demand for the company's chips would remain “absolutely and exceptionally strong” for the foreseeable future.
“The key focus is supply: how much supply Nvidia can produce,” he said.
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