Chip maker Nvidia’s (NVDA) stock could take a beating from the supply snags on the most anticipated Blackwell chips, at least in the short term. Nvidia reported better-than-expected revenue and earnings per share for Q3 FY25 yesterday. However, shares dipped 2.5% in extended trading on the disappointing Q4 forecast and potential supply challenges. The artificial intelligence (AI) giant guided for its slowest revenue growth in the last seven quarters, dragging down investor sentiment.
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Here’s Why Nvidia Faces Supply Snags
During the earnings call, CEO Jensen Huang noted that the demand for the advanced chips is expected to outpace supply for several quarters in Fiscal 2026. He added that Nvidia is ready to supply as many chips as manufacturing partner Taiwan Semiconductor (TSM) is able to produce.
However, the initial design flaw that was discovered in the chip manufacturing has put a drag on the production line. Huang did confirm that the flaw has been fixed with a “mask change.” The Blackwell chip is made up of several small chips joined together and packed with advanced packaging by TSM. The advanced packaging requirement puts a lull on the supply chain. While TSM is trying to expand the packaging capacity, it still remains below the expected levels.
Nvidia’s Future Remains Bright
The design flaw has hurt Nvidia since it has lowered Blackwell chip yields, implying that the number of fully efficient chips being produced off the manufacturing line is low. Manufacturing these chips takes several months because they go through multiple processes. One small glitch in one process could put a halt on the entire lineup. The supply drag has cost Nvidia money and delayed its timelines. Huang added that like any new product, Blackwell is also expected to go through glitches. He expects the yields to improve over time.
Nvidia said that it has already shipped nearly 13,000 samples of its new Blackwell chips and that it remains on track to sell billions of dollars worth of chips this quarter, as guided earlier. Having said that, the supply snag is expected to put pressure on the company’s margins in the short term. Margins could come down to the low-70% range until the production glitches are fully sorted.
Is Nvidia Stock a Buy or Hold?
Wall Street remains highly optimistic about Nvidia stock’s trajectory despite short-term challenges. So far, only one analyst has revised his rating post the Q3 print. TD Cowen analyst Joshua Buchalter maintained a Buy rating and lifted the price target on NVDA stock to $175 from $165, implying a nearly 20% upside potential from current levels.
On TipRanks, NVDA stock commands a Strong Buy consensus rating based on 39 Buys versus three Hold ratings. Also, the average Nvidia price target of $165.18 implies 13.2% upside potential from current levels. Meanwhile, NVDA shares have already gained 194.7% so far this year. The consensus and average price target could change after more analysts revisit their stock ratings.
