Nvidia (NASDAQ: NVDA) has impressed investors lately with its rapid innovation in artificial intelligence (AI). The company launched the Ampere architecture in 2020 and the Hopper architecture in 2022. These advancements have contributed to remarkable triple-digit growth in data center revenue.
While Nvidia has introduced several GPUs during these architecture updates, such as the new H200 succeeding the H100, CEO Jensen Huang has committed to annual chip updates to maintain the company’s leadership in the market.
The most anticipated launch, however, is the Blackwell architecture, which is set to ramp up production this quarter.
The excitement surrounding Blackwell stems from its six groundbreaking technologies, which include the most powerful GPU yet and advanced networking and preventative maintenance features. Here are three key points to know about this upcoming revenue generator for Nvidia.
Image source: Getty Images.
Robust Supply Chain Management
As Nvidia prepares for this major launch, some investors may be concerned about supply chain risks. The company does not manufacture all components in-house, depending instead on external suppliers for certain materials, such as Micron Technology and SK Hynix for memory components.
Additionally, partnerships with other companies are crucial. Equipment manufacturers like Super Micro Computer and Dell help incorporate Nvidia’s GPUs into their products and distribute them to customers.
“Almost every company in the world seems to be involved in our supply chain,” Huang noted during the recent third-quarter earnings call. This extensive network allows Nvidia to rapidly increase production, aiming to go from zero Blackwell shipments last quarter to billions this quarter. Such diversity in suppliers minimizes the chances of delays, given the strong demand for the new platform.
High Demand from Leading Customers
Nvidia does not specify how much revenue each customer contributes, but insights from Huang and other sources indicate that major tech firms like Microsoft, Oracle, and OpenAI are driving demand for Blackwell. These companies have already received Blackwell systems, as noted on social media.
In its earnings report, Meta Platforms announced plans to increase AI infrastructure spending, implying more investments in Nvidia’s offerings. Alphabet also mentioned it would be an early provider of Blackwell GPUs. Additionally, Oracle co-founder Larry Ellison remarked that both he and Tesla CEO Elon Musk had urged Huang for more GPUs.
These tech giants have the resources to heavily invest in AI, and their commitment to gaining an edge in this technological race makes it likely that they will return to Nvidia for the leading products and services, reinforcing confidence in Blackwell’s potential as a significant growth driver.
Short-Term Margin Dip Expected
Nvidia reported a gross margin exceeding 74% in the third quarter, reflecting impressive profitability. The company has maintained margins above 70% consistently.
However, Nvidia anticipates a slight decrease in gross margin to the low 70% range during the Blackwell launch phase. This dip is not concerning; it’s a usual part of managing a launch with multiple configurations and partnerships.
Initially, the complexity of juggling various Blackwell configurations, chip variants, and customer types will incur higher costs. Nvidia expects that as Blackwell reaches full production, gross margins should stabilize around the mid-70% mark by the second half of next year. This level of profitability, coupled with steady revenue growth, positions Nvidia to benefit from the ongoing AI trend.
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Randi Zuckerberg, a former director of market development at Facebook and sister to Meta Platforms CEO Mark Zuckerberg, serves on The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is also a board member. Adria Cimino holds positions in both Oracle and Tesla. The Motley Fool has investments in and recommends Alphabet, Meta Platforms, Microsoft, Nvidia, Oracle, and Tesla. The Motley Fool also suggests options such as long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. For further details, please refer to The Motley Fool’s disclosure policy.
The views and opinions expressed herein are those of the author and don’t necessarily reflect those of Nasdaq, Inc.
