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NVIDIA (NVDA -1%) is dipping today after The Information reported that its flagship AI GPU platform, Blackwell, is experiencing overheating issues when installed in high-capacity server racks, housings found in data centers that support many servers, routers, storage units, etc. To alleviate the problem, NVDA must redesign the server racks, which could delay the broader adoption of Blackwell and disrupt expected revenue.

During its Q2 (Jul) earnings call, NVDA mentioned that by Q4 (Jan), it expects to ship several billion dollars in Blackwell revenue. At the same time, NVDA commented that demand continues to exceed supply, illuminating the unwavering appetite for the company's leading AI-powered system, a trend that NVDA anticipates will persist into 2025.

NVDA reports Q3 (Oct) results on Wednesday after the close. The company is up against elevated expectations, given its history of topping revenue estimates by roughly $1.5 bln over the past five quarters while also projecting quarterly revenue of around $1.5 bln higher than the consensus. While the reported Blackwell overheating issues will likely not damper Q3 revenue, it could disrupt Q4 projections, potentially causing NVDA to guide by less than its recent upbeat trend. With the stock pushing to all-time highs last week, any missteps could weigh heavily on NVDA and, subsequently, the broader market.

• Nevertheless, today's news may not be too significant. Redesigning server racks, albeit a setback, does not indicate deteriorating demand. During the previous earnings season, robust AI-related demand was a recurring theme among tech giants and chip makers. As such, the worst-case scenario may be that Blackwell revenue is pushed into future periods.
• Meanwhile, NVDA's Hopper architecture continues to enjoy tremendous success. NVDA noted that the demand for Hopper continued to accelerate during Q2 even as organizations gear up to adopt Blackwell. In fact, NVDA added that Hopper shipments should tick higher during the back half of FY25.
• This trend showcases that Blackwell is not cannibalizing sales from Hopper. Management stated that it has many new products for Hopper and that existing products will continue to ramp over the next few quarters, supporting 2H25 growth relative to 1H25 even as Blackwell begins to bring in substantial revenue.

Today's overheating concern surrounding Blackwell is not immaterial, as it could lead to NVDA's Q4 revenue outlook falling shy of sky-high expectations. However, since the overheating is largely due to the server rack rather than the GPU itself, any delays may be quickly resolved, leading to outsized revenue growth in later periods, especially if the demand for AI continues to accelerate at such a breakneck pace.