Earlier this quarter, the Dow Jones Industrial Average surged over 450 points, breaching the 39,000 mark for the first time in history, largely driven by one company's exceptional performance in artificial intelligence and cloud technology.
Nvidia reported an extraordinary five-fold increase in AI and cloud revenue, alongside a net income surpassing $12 billion, nearly $2 billion above expectations. The chipmaker experienced a remarkable 265% growth in revenue, attributed directly to its unique status as the sole provider of a full-stack solution powering generative artificial intelligence (GenAI) platforms. Their solution encompasses programmable GPUs, accompanying software, and the essential networks tailored for contemporary cloud workloads. And it appears this company, along with a few others, are helping the microchip industry rebound.
How far we’ve come!
If you recall, a few years ago COVID nearly stopped the chip supply industry dead in its tracks. There was over-ordering going on, accusations of hoarding, and bottlenecks across the global economy.
As a result of the pandemic, people moved to remote work and e-learning environments, and consumer behavior shifted to computer-based purchasing, which placed additional strain on the already weakened chip supply.
Why have things changed?
According to technology experts like Raj Joshi, part of the reason markets are rebounding is because of the unique void that vendors like Nvidia are able to now fill. Joshi is quoted in Computer World saying that “These GPUs (like Nvidia’s) require a certain type of chip-packaging process that is specialized. That’s where there’s a shortage of capacity, and TSMC has been on the record of doubling that capacity this year. But the demand is unabsorbed because it’s so strong. So, supply is improving by day, by week, by month, but demand also remains strong.”
Measured Optimism
Other market players, like Intel, Samsung, Micron, and Texas Instruments have either announced plans to build or are already building, new chip foundries and factories within the United States. These initiatives are, in part, a response to the CHIPS Act spearheaded by President Joseph R. Biden Jr., ratified in 2022. While TSMC initially aimed to commence chip production this year at one of its two facilities in Phoenix, Arizona, they have postponed this endeavor until 2027 or 2028.
It's been reported that public policies like the CHIPS Act, will help impact growth, but not in the near term. Instead, according to experts like Joshi, it might take until 2026 for the volumes to become meaningful.
The good news is that change is coming, it’s just going to take a little longer than we’d hoped for.
