In recent weeks, as investors have sold off the big winners of the AI wave in the first half of the year, Nvidia's stock price has plummeted. Nvidia's stock price fell to $98.91 yesterday, breaking through the $100 mark. $NVDA.US$ Nvidia's stock price has fallen sharply. Yesterday, Nvidia's stock price closed at $98.91, below the $100 mark.

There are currently two factors driving market attention: first, Mag 7's huge investment in AI field has not achieved sufficient monetization benefits, which has significant negative impact; second, there are reports over the weekend (August 4) that Nvidia's new Blackwell chip series is facing delivery delays, which has further increased investors' expectations for future performance adjustments.

According to the financial reports, in the second quarter, Mag 7's AI commercialization revenue was still not significant, but AI investment saw a significant increase. To purchase Nvidia's AI graphics cards, Mag 7's single-quarter capital expenditure is mostly above $10 billion, with a quarterly growth rate of 10%-28%.

Microsoft's Q2 24 capital expenditure (excluding financial leasing) was $13.87 billion, a year-on-year increase of 55% and a quarter-on-quarter increase of 27%. About half of the capital expenditure was used for data centers and the other half for servers.

Although it cannot be denied that Mag 7's AI business currently has obvious shortcomings, from the perspective of capital expenditure and prospects of the North American giants, the second quarter saw significant growth in capital expenditure and AI investment by all four of the North America's largest cloud companies (Microsoft, Google, Amazon, Meta), and the outlook for future capital expenditure and AI investment is optimistic.

What do you think of the Blackwell chip rumors?

In addition, there are negative rumors about the Blackwell architecture chip, including key issues such as b100 being abandoned, GB200 motherboard shipment delay, reflow, and low CoWo-S yield.

• b100 being abandoned and GB200 motherboard shipment delay

Wu Zihao, the CEO of Ronghe Semiconductor, said that the redesigned chip this time is the b102 chip, which is the basis for all Blackwell chips.

- b102: composed of one GPU die + 4 HBM3e;

- b100: composed of two b102s;

- GB200 motherboard: composed of two b100s + one Grace CPU;

- Server: consisting of main boards and various system-level accessories (liquid cooling, copper cables, etc.).

Due to the redesign of the underlying basic chip (the b102 chip), it is indeed possible to affect the subsequent schedule of main boards, servers, and even the entire supply. However, the specific schedule still depends on the resolution of the following issues.

• Reflow

In addition, according to analyst reports, the problem with the redesign of the underlying basic chip (b102 chip) is mainly with the underlying Standard cell, which is the pre-designed standard specific function and size circuit module. However, fortunately, all problems have now been discovered, and it only requires the remaking of the mask.

However, the time from Wafer-in to Wafer-out in the actual chip production stage cannot be shortened. Fortunately, it will only have a small amount of shipment in 2024, and it is not the shipment time for Blackwell servers themselves. If the production capacity is expanded before the end of this year, it may be possible to catch up with the shipment progress of the small quantity. This is not difficult for Taiwan Semiconductor.

• Low CoWo-S packaging yield

Finally, Morgan Stanley pointed out that Nvidia's Blackwell architecture AI chip still has CoWoS-L packaging yield issues, and they decided to switch to the higher yield CoWoS-S packaging. Although this may cause TSMC to suspend production for two weeks (or even more), it is expected that it will be able to deliver to cloud giants on time in the fourth quarter as the production capacity expands. At the same time, Morgan Stanley reiterated its target forecast for Nvidia's stock price to reach $144 within 12 months.

On the other hand, regarding the CoWoS-L packaging yield, Morgan Stanley initially estimated it to be 60%, but Nomura team, which is the most thorough in CoWoS research in the industry, confirmed that the actual yield exceeds 90%. However, it is still lower than the 99% yield of CoWoS-S. Faced with this situation, Nvidia has taken an alternative plan, which is to use the higher-yield CoWoS-S packaging to ensure that server shipments are not affected, and Nvidia will not bet everything on a single new process.

How does Wall Street evaluate this incident?

Therefore, the problems currently found in Blackwell chips will indeed have an impact on performance, but the impact is minimal.

Ronghe Semiconductor CEO Wu Zihao further pointed out that Nvidia will not have big problems in the short term. The key is that Blackwell chips are only small batch production in the third quarter, and they will be mass-produced in the fourth quarter. Moreover, this is only TSMC's production rhythm. After completing the production of the GPU die, the next step is the back-end CoWoS, followed by the Bumping factory, and finally the industrial internet and Wistron to assemble the systems, and then complete the server shipments and performance landing.

At the current pace, the large-scale delivery of servers will be at the earliest in the first quarter of 2025. In other words, Nvidia will achieve significant business increment in Blackwell chips only in the first quarter of next year. This is also a reasonable expectation that the market had originally had, and it will not be reflected in the results of the second quarter or even the third quarter of this year.

For Nvidia, it is currently working on resolving the design issue and plans to produce affected chips at TSMC in an urgent manner in the later part of Q4 (November-December). Since this portion of the capacity has already been reserved, it can continue production for three months and regardless of N4P or CoWoS - S/L, TSMC's capacity is more sufficient than it is now, with a plant utilization rate of 120%, so there is basically no problem to cope with the delay of chip shipments caused by design defects, which were supposed to be shipped in small quantities in Q3.

In other words, in terms of the year, Blackwell shipments this year will be lower, but not much lower.

In addition, investors can also pay attention to the fact that at the Super Micro Computer financial report conference, its CEO holds a cautious attitude towards the sales growth of Nvidia's Blackwell GPU and the significant growth is expected to be delayed to the March quarter of 2025. The delay is mainly due to the design issue forcing Nvidia and TSMC to re-produce, resulting in major customers including Meta, Google and Microsoft having to wait until the first quarter of 2025 to receive a large number of shipments.

Finally, Harsh Kumar of the American investment company Piper Sandler considers the impact of the Nvidia Blackwell chip incident on the stock price as a huge investment opportunity. He pointed out that even if the delivery time is slightly delayed, it will only have an impact of about 1 billion US dollars on the revenue of the quarter ending in October and an impact of 2 billion to 3 billion US dollars on the revenue of the quarter ending in January next year.

The stock rating of Nvidia is "shareholding", with a target price of $140.

In addition, Nvidia will release its latest performance after the market on August 28th Eastern Time, which will affect the performance of Nvidia's stock price. Investors can pay close attention to it.

Editor/ping