*

Company selling chips as fast as contractor TSMC can make

them

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New Blackwell chip had initial design flaw that has been

fixed

-Nvidia ( NVDA ) CEO

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Production ramp-up expected to pressure gross margins in

short

term

By Stephen Nellis and Aditya Soni

SAN FRANCISCO/BENGALURU, Nov 21 (Reuters) - Nvidia's ( NVDA )

revenue forecast on Wednesday disappointed Wall Street,

raising questions over whether the artificial intelligence boom

is waning. But the answer, according to Nvidia ( NVDA ) executives,

analysts and investors, is a resounding no.

There is no shortage of companies eager to create new AI

systems using Nvidia's ( NVDA ) superior chips, and the world's largest

publicly listed company is selling them as fast as its

chipmaking contractor Taiwan Semiconductor Manufacturing Co ( TSM )

can make them.

Nvidia ( NVDA ) forecast its slowest revenue growth in seven quarters

on Wednesday, pushing its stock down 2.5% after hours, and said

supply chain constraints would lead to demand for its chips

exceeding supply for several quarters in fiscal 2026.

Making these chips is hard, and a flaw that was found in one

of its chips over the summer is not helping.

Nvidia's ( NVDA ) new flagship chip, named Blackwell, is actually

made up of multiple chips that have to be glued together in a

complex process the chip industry calls advanced packaging.

While TSMC is racing to expand capacity, packaging remains a

bottleneck for Nvidia ( NVDA ) and other chip companies.

"Blackwell adds more advanced packaging from TSMC than prior

chips, which adds a wrinkle," said Ben Bajarin, CEO and

principal analyst at research firm Creative Strategies. He

expects Nvidia ( NVDA ) will have more demand than it can supply for all

of 2025.

Missteps by Nvidia ( NVDA ) have exacerbated the issues.

The design flaw in Blackwell forced Nvidia ( NVDA ) to undertake what

it calls a "mask change." CEO Jensen Huang said the flaw, which

has since been fixed, lowered Blackwell chip yields, which are

the proportion of chips that come off the manufacturing line

fully functional.

While Nvidia ( NVDA ) never elaborated on the flaw, complex chips

like Blackwell can take months to produce because they require

hundreds of manufacturing steps. Many of these steps involve

shining ultraviolet light through a series of complex masks to

project the image of a chip's circuits on a disc of silicon - a

process akin to printing the chip.

The mask change appears to have set back Nvidia's ( NVDA ) production

timelines and cost it money, analysts said.

"There's the risk that the bottlenecks worsen rather than

improve, and that could damage revenue projections," said

Michael Schulman, chief investment officer at Running Point

Capital.

During a conference call with investors, Nvidia ( NVDA ) executives

said the company has shipped about 13,000 samples of its new

chip and expects to beat its initial estimates that it would

sell several billion dollars' worth this quarter.

"We're at the beginning of our production ramp, which always

comes with opportunities for yield improvement," Huang told

Reuters on Wednesday. "We are ramping Blackwell from zero to

something extremely large. By definition, the laws of physics

would say that there's a limit to how fast you can ramp."

In the short term, the production ramp-up is expected to

pressure gross margins.

Nvidia ( NVDA ) executives warned investors the company's margins

would sink several percentage points to the low-70% range until

production kinks are ironed out.

Hendi Susanto, a portfolio manager at Gabelli Funds, which

holds Nvidia ( NVDA ) shares, said there was no doubt that demand for the

company's chips remained "absolutely and exceptionally strong"

for the foreseeable future.

"The key focus is supply - how much supply Nvidia ( NVDA ) can

produce," he said.