Nvidia's Imminent Release of Blackwell Is Approaching. Here Are Three Crucial Facts.
Nvidia (NVDA up by 3.14%) has been impressing investors with its rapid innovation over the past few years, introducing new architectures and graphics processing units (GPUs) to lead in the high-growth market of artificial intelligence (AI). The Ampere architecture debuted in 2020, followed by Hopper in 2022, fueling the tech giant's consistent triple-digit data center revenue growth per quarter.
Between these major launches, Nvidia introduced enhanced GPUs, such as the upgrade from H100 to H200. CEO Jensen Huang commits to updating chips annually, ensuring the company's continuous dominance in the industry.
The highly anticipated launch that's generating widespread buzz is the Blackwell architecture, which is set to hit the market soon. Nvidia expects to ramp up production for this quarter.
The excitement surrounding Blackwell stems from its impressive features – six groundbreaking technologies, including the most powerful GPU yet, advanced high-speed networking, and preventative maintenance capabilities. Here's what investors need to know about this potential blockbuster product for Nvidia:
The supply chain is vast
With a significant transition ahead, some investors might be concerned about potential supply chain risks. Nvidia doesn't produce all of its products in-house and instead relies on suppliers, like Micron Technology and SK Hynix, for certain components or services, and partners, such as Super Micro Computer and Dell, to incorporate GPUs into their products.
Nvidia's reliance on a diverse range of partners allows the company to ramp up production at a high level, ensuring a continuous supply for the swelling demand for the Blackwell platform.
This extensive supply chain also ensures that if one supplier faces issues, Nvidia can pivot to another to maintain production without delays. With the high market demand for Blackwell, it's crucial for Nvidia to avoid any delivery hiccups.
Big customers are creating immense demand
Nvidia doesn't disclose its revenue breakdown by customer. However, through comments from Huang and these tech giants, we know that prominent industry players, such as Microsoft, Oracle, and OpenAI, are fueling demand for Blackwell systems.
Other major tech players, like Meta Platforms and Alphabet, are increasing their AI infrastructure spending, which suggests growing interest in Nvidia's products. Furthermore, Tesla CEO Elon Musk and Oracle co-founder Larry Ellison have reportedly made requests to Nvidia CEO Jensen Huang for more GPUs.
These industry titans have significant financial resources to invest heavily in AI. Their dedication to winning in the AI revolution implies a continuous interest in partnering with the company delivering cutting-edge AI products and services – in this case, Nvidia.
This overwhelming industry support bodes well for Blackwell's potential to serve as Nvidia's next major growth catalyst.
Gross margin will dip before rising again
During the third quarter, Nvidia reported a staggering gross margin of over 74%, indicating robust profitability. The company has maintained levels of profitability consistently above 70% for several quarters.
However, Nvidia forecasts a small dip in gross margin to the low 70% range as the Blackwell launch unfolds. While this trend might seem concerning, it's important to remember that it's a predictable byproduct of the complexities involved during the initial stages of a new product launch.
Nvidia is focusing on a multitude of elements, including various Blackwell configurations, multiple chips, numerous networking options, and a variety of clientele, from cloud providers to equipment manufacturers. Tackling these complexities could lead to higher costs in the short term, but this issue should be a temporary hurdle.
When Blackwell reaches full production, Nvidia anticipates that gross margin will stabilize in the mid-70% range, potentially in the latter half of the following year. This level of profitability combined with consistent revenue growth could make Nvidia an impressive player in the AI revolution, and its investors major beneficiaries.
Investors should keep an eye on Nvidia's supply chain management during the Blackwell architecture launch, as the tech giant relies on partners like Micron Technology and Dell to ensure a continuous supply for the increasing demand. This diverse partnership network allows Nvidia to mitigate potential risks and maintain production levels.
With significant industry players, such as Microsoft, Oracle, and OpenAI, fueling demand for Blackwell systems, there's a tremendous financial investment in the AI revolution, which could position Nvidia as a major growth catalyst.
