1 Monster Opportunity In The Global Chip Shortage

© Global Chip Shortage by Motley Fool 1 Monster Opportunity

The semiconductor industry has been disrupted for the past three years due to supply chain problems caused by the Covid-19 pandemic of 2020. Then the demand for electronics increased dramatically. Selling personal computers (PCs), game consoles and smartphones, among others.

Although the semiconductor shortage has eased somewhat since then (in part because demand for consumer electronics has weakened and chipmakers have brought more capacity online), there is one area where chip shortages are recovering.

Demand for the server chips needed to train and run artificial intelligence (AI) applications has increased, according to data from a technology-focused publication last month. This is not surprising because by 2032, the AI ​​chip market will generate more than $227 billion in annual revenue, growing by 30% annually over the next decade.

One company that could benefit significantly from this market is Nvidia (NASDAQ:NVDA) . And the proof is the lack of AI chips. Let's take a closer look at what's happening in the chip markets and how it benefits Nvidia shareholders.

Consumers are said to be waiting to get their hands on Nvidia chips.

According to the data, cloud infrastructure providers such as Amazon , Microsoft , Google and Alphabet 's Oracle are operating at full capacity as demand for artificial intelligence software increases. Training and running AI software and workloads requires graphics processing units (GPUs), which are chips capable of computing large amounts of data.

Nvidia is the market leader in GPUs. The company controls 85% of graphics cards used by PC gamers, while enterprise GPUs (those found in data centers for AI and other workloads) account for more than 90%. So it's not surprising to see that there is a waiting period for GPUs from Nvidia.

The semiconductor giant reportedly took two to three months to fill orders for its cloud server chips. Now there are fears that the delay in Nvidia's chips could slow the development of generative AI applications. However, there are several reasons why NVIDIA can overcome this shortcoming and accelerate customers' AI initiatives.

The tech giant is ready to enter this huge market.

Nevia will place additional chip orders with founding partner Taiwan Semiconductor Manufacturing, known as TSMC. Taiwan's DigiTimes reports that TSMC has committed to supply 10-20% more chip-on-substrate (CoWoS) wafers to Nvidia for deployment in high-performance computing (HPC) applications.

More importantly, Nvidia's new generation of data center GPUs could reduce the number of chips needed to train and run AI models. The company's latest generation H100 Hopper data center GPUs are reported to be 9x faster and around 30x faster when training AI models. In addition, Nvidia offers a super-fast AI chip that costs two to three times the price of the previous-generation A100 data center GPUs that power Microsoft and its popular OpenAI ChatGPT chatbot .

Simply put, Nvidia customers can now handle much larger AI workloads with the H100 GPU at a lower cost than the company's previous generation A100 GPUs. Therefore, it would not be surprising if demand for Nvidia H100 GPUs increases in the future, especially as customers require fewer such chips to meet their AI-related needs.

Since the price of H100 GPUs is much higher than their predecessors, Nvidia can enjoy significant margins and stable long-term revenue growth. The good news is that Nvidia H100 GPUs are in high demand from a variety of customers powering many generative AI applications.

All of this suggests that Nvidia may continue to dominate the AI ​​chip market. One Wall Street analyst said the AI ​​opportunity could cause Nvidia's stock to rise 5x over the next decade. So after a 114% gain in 2023, investors who aren't already thinking about buying Nvidia stock can still buy the stock.

Of course, some might argue that Nvidia is currently overvalued at 173 times earnings. However, the price-to-earnings (P/E) ratio of 67 points has been declining over time, meaning that investors who are wary of buying these AI-rich stocks can still buy them because they have more to offer. It also recovered from the disastrous results of 2023.

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Alphabet CEO Susan Frey is a Motley Fool board member. John McKee, former CEO of Amazon's Sub Whole Foods Market, is a Motley Fool board member. Harsh Chauhan has no position in the stock list. The Motley Fool owns and recommends Alphabet, Amazon.com, Microsoft, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

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