Nvidia stock could drop and you’re hearing it here first

Nvidia’s stock dropped on reports of overheating issues with its new Blackwell AI chips, impacting the company ahead of its earnings report. Problems surfaced after its chips, used in servers designed for high-performance computing, overheat in configurations intended for 72 units. Nvidia is facing pressure as it aims to ramp up production.

Industry reports, notably from The Information, indicate that Nvidia’s Blackwell graphics processing units are encountering difficulties when deployed in server racks, leading to concerns among clients. A Reuters piece elaborated on how the overheating occurs when the GPUs are housed together, raising alarms about the ability to integrate them efficiently into existing data center models.

Despite these challenges, Nvidia’s spokesperson stated that “engineering iterations are normal and expected” during the development of such sophisticated systems. They emphasized that the GB200 systems represent “the most advanced computers ever created” and highlighted their commitment to co-engineering with cloud service providers.

Nvidia’s Chief Executive Officer Jensen Huang previously characterized the Blackwell chip as a “complete game changer for the industry.” The company has projected that the new chips could yield billions in revenue during the January quarter, as production is expected to ramp up significantly. However, market reactions were timid, with Nvidia’s shares initially falling by approximately 1.8% on Monday before settling down 1.3% at around $140.15.

Investors remain on edge as Nvidia prepares to release its highly anticipated earnings report. The Blackwell GPUs have previously been linked to design issues. In August, reports suggested that design flaws had already impacted production timelines, pushing back availability from September to the December quarter. These production delays alongside current overheating concerns have fueled uncertainties about customer readiness to deploy the new chips in their data centers.

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Nvidia stated that they are collaborating closely with customers to mitigate these issues, reinforcing that the challenges posed by new technologies are part of the development process. Dell Technologies has mentioned that they are already shipping a portion of Nvidia’s Blackwell servers as part of their AI hardware solutions, showcasing ongoing strong demand despite the reported issues.

Another element affecting Nvidia’s stock stems from wider industry trends. Investor sentiment is growing wary of diminishing AI spending from big tech companies, which could lead to decreased demand for AI chips. Recent earnings reports from chip manufacturers, particularly Applied Materials, sparked broader concerns across technology stocks, evidenced by a notable decline in chip equities following those announcements.

Nvidia approaches its earnings report slated for release after the market closes on Wednesday and the market watches closely to see how these technical issues will shape financial forecasts.

Disclaimer: The information provided in this article is for informational purposes only and should not be considered financial or investment advice. Please consult with a qualified financial advisor before making any investment decisions.

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