Nvidia, the leading player in the artificial intelligence (AI) chip market, is set to roll out its newest line of chips, Grace Blackwell, in the near future. The demand for these chips has been described as “insane” by Nvidia’s CEO, Jensen Huang, and “crazy” by the CEO of Foxconn, one of Nvidia’s manufacturing partners. With the company’s chips being the backbone of the AI industry, their power and efficiency have yet to be matched by any competitor.
Nvidia’s commitment to a yearly update cadence for its chip architecture aims to maintain its dominance in the market. Each iteration of the chips is significantly more powerful than its predecessor, with the upcoming Blackwell chip expected to be at least 400% more powerful than the previous Hopper chip. This aggressive pace of innovation creates a significant challenge for competitors like AMD, who have a smaller research and development budget.
However, Nvidia faced a setback when a manufacturing issue was discovered, leading to a delay in the release of Blackwell. While this flaw did not affect the chips’ functionality, it raised concerns about the sustainability of Nvidia’s update cadence. Nevertheless, the delay is relatively minor, and the company has handled the situation well, assuring investors that Blackwell will begin rolling out soon.
To meet the overwhelming demand for Blackwell chips, Nvidia has partnered with Foxconn to build a massive production facility in Mexico, which will become the largest in the world. This move not only diversifies Nvidia’s production away from Taiwan but also significantly increases manufacturing capacity. The company has already sold out of Blackwell chips for an entire year, indicating strong market demand.
Despite the positive outlook, caution is advised for investors with shorter time horizons. Nvidia’s stock is trading at all-time highs, and its forward price-to-earnings ratio (P/E) of 46 is considered high, even for the tech industry. While the delivery of Blackwell chips may further boost the stock, it is important to carefully evaluate the company’s valuation.