Nvidia's AI Chip Boom Sparks Stock Market Surge Amid Customer Strain and Supply Challenges
1min read On the back of immense demand for AI chips, Nvidia has once again become a beacon of hope for the U.S. stock market. CEO Jensen Huang has expressed that the overwhelming demand has led to strained relationships with customers, pushing the company to increase production in the fourth quarter of this year.
Speaking at a tech talk organized by Goldman Sachs, Huang highlighted the robust demand for Nvidia's latest Blackwell chips. He noted that every company wants to be the first to get hold of this cutting-edge product, aiming for the highest capacity to stay ahead. The company's strength in algorithm optimization and architectural consistency significantly boosts the total cost and competitiveness for their clients.
Huang pointed out that innovation in AI computing would accelerate, allowing Nvidia to substantially improve performance every two years through various chip and technology combinations. As a result, the company would continue to dominate the market. Following Huang's optimistic remarks, Nvidia's stock surged, with shares increasing by 8.4%, reaching a peak of $117 during intraday trading—the highest single-day gain in six weeks.
Driven by Nvidia's stock rally, the S&P 500 index recovered from an early 1.6% drop to gain over 1%, the Dow Jones Industrial Average turned positive by rising 0.3%, and the Nasdaq Composite jumped over 2%, reversing a prior 1.4% decline.
With the stock market showing such strong dependency on Nvidia's performance, there were concerns about the company's high valuation, especially as its growth rate began to slow down in the second quarter. Despite Nvidia's revenue and profit reflecting continued AI investment, the gains were less remarkable than in previous quarters, signaling caution among tech investors.
Nvidia's reliance on a few significant clients, such as data center operators like Microsoft and Meta Platforms Inc., makes it more vulnerable to supply shortages. Huang acknowledged the tight supply situation and emotional client responses, stressing that the company was doing everything possible to meet demand.
Nvidia outsources hardware production to suppliers who are now ramping up capacity to handle the immense demand. This uptick in demand, especially from data centers developing and running AI models, has helped boost Nvidia's sales and stock value sharply. Following a 239% rise in 2023, Nvidia's shares have already more than doubled this year, with Wednesday's trading closing at $116.91, up 8.1%.
Huang also emphasized that despite TSMC's leading role in chip manufacturing, Nvidia could shift orders to other suppliers if necessary, but this could risk a decline in chip quality. He affirmed that the Blackwell chips are fully in production and will begin shipping in the fourth quarter, reaffirming Nvidia's commitment to meeting the technological demands of its customers.