Nvidia is using its swollen wallet to lock down its supply chain to make sure that it is getting memory and other vital AI computing parts.
When the AI chip giant filed its last quarterly update three months ago, it reported $95.2 billion in purchase commitments with suppliers.
That dwarfed the $11.4 billion in commitments linked to Nvidia’s many investments. It represented an 89 per cent jump in just three months. Key components such as memory are getting pricier and are in short supply.
Nvidia chief financial officer Colette Kress said the company had “strategically secured inventory and capacity to meet demand beyond the next several quarters.”
Purchase commitments are obscure enough that most analysts do not forecast them. Unlike revenue, earnings and free cash flow, there is no consensus on where purchase commitments will land when Nvidia posts its fiscal first-quarter report next week.
Memory costs alone have jumped further since the last report. Even staying flat at $95 billion would be no small thing.
That is just more than half of the company’s projected free cash flow for the current fiscal year. Nvidia expects most of those purchase commitments to be paid out during the same period.
Nvidia is not short of cash, given that the world’s largest companies keep emptying their coffers on AI infrastructure. But the makers of that infrastructure still have to deal with scarcity. Memory chips, optical components and advanced manufacturing lines at TSMC are all in hot demand.
All the money in the world cannot quickly conjure more of those products and services. A memory chip factory takes years to build and get running.
Nvidia is not the only outfit trying to lock down its parts cupboard. Broadcom told investors in March that it had “secured the supply chain required” to hit $100 billion in AI chip revenue next year.
That would be a little more than triple the current annual revenue of that business segment.
Nvidia’s smaller direct rival AMD disclosed a little more than $21 billion in purchase commitments through next year in its first-quarter filing last week. That was more than double what AMD reported three months ago for the same period.
Using giant cheque books to lay claim to the supply chain is lovely for those who can afford it. For those who cannot, it raises awkward questions about fairness and competition during a shortage.
Cerebras, a maker of monster-sized chips due to go public later this week, raised its offering price range by nearly 30 per cent on Monday. It now plans to raise about $4.8 billion, suggesting investors are sufficiently keen.
Even with that windfall, Cerebras will still be stuck behind larger players that need memory and TSMC’s manufacturing services.
Its IPO filing includes a lengthy warning that it purchases nearly all necessary services and components on a purchase-order basis, without long-term agreements.
