Heard on the Street: Nvidia Overheating Report Unlikely to Cool AI Server Demand -- WSJ

By Dan Gallagher

Nvidia's newest artificial intelligence systems may or may not have an overheating issue. But such is the AI market that the chipmaker and its suppliers are unlikely to have any problem filling their order books.

That helps explain the odd swing of trades Monday morning. Nvidia's stock slipped more than 3% after the opening bell following a report over the weekend by The Information that the company is still tweaking the design of one of its newest systems to prevent overheating. But the stock quickly recovered much of that ground and was last down just 1.4%. In the meantime, Dell, Super Micro and Hewlett Packard Enterprise--all of whom make servers using Nvidia's chips--all made strong gains in morning trades.

The new Nvidia system is a cluster of 72 GPU chips designed to superpower artificial-intelligence processing. The system--called the NVL72--is part of the much-anticipated Blackwell product line that is expected to begin volume shipping soon and anchor Nvidia's business next year. Wall Street is expecting explosive growth; analysts project the Blackwell family will generate nearly $63 billion in revenue for Nvidia's next fiscal year compared with just $4 billion for the current fiscal year ending in January, according to consensus estimates from Visible Alpha.

That's also expected to provide a strong boost for the companies that design the servers for those chips. In a post on the X platform Sunday, Dell CEO Michael Dell announced the company is now shipping server racks with the NVL72 systems. Dell's shares rose 4.6%. Super Micro--which has seen its stock shed more than three-quarters of its value over the past six months on a growing scandal about its accounting--jumped 16% Monday.

Demand for AI is such that Nvidia's older chips are still expected to remain a hot property. Analysts expect Hopper--the company's current family of AI processors--to generate more than $42 billion in revenue next year even with Blackwell shipping. In a note to clients Monday, BofA Securities analyst Vivek Arya said "every cloud customer needs to deploy as much as AI capacity (Hopper and/or Blackwell) to address surging demand." Investors will be looking closely at Nvidia's fiscal third quarter report Wednesday afternoon, to see if the chipmaker's forecast lives up to that billing.

This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here.

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November 18, 2024 12:00 ET (17:00 GMT)

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