Executives from a prominent Silicon Valley computer and server manufacturer recently highlighted the urgent need for additional artificial-intelligence (AI) chips from Nvidia Corp. This acknowledgment confirms the existence of supply constraints in Nvidia's highly sought-after graphics chips. While companies remain enthusiastic about AI applications, obtaining the necessary hardware may pose immediate challenges.

As a result, both Nvidia ($NVDA) and Super Micro Computer Inc. ($SMCI) experienced declines in their share prices, despite their significant gains in the AI sector. While Supermicro's shares plummeted nearly 23%, Nvidia only saw a modest decrease of just over 3%. Prior to this setback, both companies achieved impressive year-to-date increases of 323% and 206% respectively.

Analysts expressed concern over Supermicro's outlook for the upcoming September quarter, which indicated a possible decline in revenue growth rates to single digits. The company's projected revenue range of $1.9 billion to $2.1 billion suggests a growth range of 5.5% to 22%, significantly lower than the 34% revenue growth experienced in the previous June quarter, amounting to $2.18 billion.

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Supermicro Reports Supply Constraints for Nvidia Graphics Chips

Supermicro's Chief Executive, Charles Liang, addressed analysts during a call to discuss the company's current supply constraints for graphics chips designed for AI applications, which are manufactured by Nvidia. When asked about Nvidia's projections for a doubling of its data-center revenue in the past July-quarter, Liang acknowledged the potential lag time between when Nvidia recognizes revenue and when equipment makers like Supermicro do.

In an effort to address the supply constraints, Liang expressed that Supermicro is in regular communication with Nvidia, actively seeking more capacity. He remains optimistic that their support will increase, leading to a quicker expansion of Nvidia's capacity.

Supermicro's Chief Financial Officer, David Weigand, revealed that the company experienced a significant rise in revenue from servers designed specifically for AI-based applications. In fact, 52% of their revenue now comes from these server racks, marking a substantial increase from the previous quarter's 30%.

Aaron Rakers, an analyst from Wells Fargo who closely follows Nvidia, mentioned the supply constraints faced by Supermicro in a brief note. Rakers pointed out that these constraints suggest a three-times sequential revenue increase for Nvidia's upcoming quarter, with results set to be announced on August 23.

Despite the strong demand for AI-designed servers, Supermicro reported a decline in overall data-center demand. When questioned about the company's non-AI business and spending on non-AI-related servers, Liang shared that Supermicro's other sales remained relatively steady while the overall industry experienced a decline.

Nvidia's Upcoming Report on Quarterly Revenue

Investors are eagerly anticipating Nvidia's report later this month, which is expected to shed light on the company's financial performance. The forecast predicts a staggering $11 billion in quarterly revenue. However, concerns regarding potential supply issues and their impact on future results have been looming in the minds of many.

As professionals watch closely, it remains to be seen how external factors such as supply chain challenges might influence Nvidia's financial outcomes moving forward. With this looming question, investors are eagerly awaiting the release of their report, which will provide invaluable insights into the company's current standing.

Stay tuned for Nvidia's upcoming report as we delve deeper into the details and examine the potential implications of supply issues on their anticipated results.

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