'We expect supply constraints to be the headwind to gaming in Q1 and beyond' says Nvidia, although it claims demand and inventory levels are 'healthy'

AI and data center revenue was very much the focus of Nvidia's recent earnings call, while gaming took something of a backseat. This won't come as a surprise to most of you, I'm sure.

However, Nvidia executive vice president and chief financial officer Colette Kress did dedicate a small segment of her opening remarks to the market that first put Nvidia on the map:

"Gaming revenue of $3.7 billion increased 47% year on year, driven by strong Blackwell demand and improved supply. GeForce RTX is the leading platform for PC gamers, creators, and developers", said Kress.

"Looking ahead, while end demand for our products remains strong and channel inventory levels are healthy, we expect supply constraints to be the headwind to Gaming in Q1 and beyond."

Later in the call, and appearing to reference Nvidia's entire hardware stack, Kress said that Nvidia had "strategically secured inventory and capacity to meet demand beyond the next several quarters." However, given the massive revenue NV is pulling in from the data center side of its business right now, I would imagine that a large portion of those efforts are going towards AI-hardware—with perhaps less of a priority given to its gaming portfolio.

"While we expect tightness in the supply for our advanced architectures to persist", Kress continued. "We remain confident in our ability to capitalize on the growth opportunity ahead with our scale, expansive supply chain, and long-standing partnerships continuing to serve us well."

That last point is an interesting one. Nvidia is the belle of the ball right now, and maintains very close relationships with both memory manufacturers and TSMC, which produces the chips at the core of its products.

There's an argument to be made that if any single company was capable of staying ahead of the supply chain issues right now, it'd be Nvidia... whose AI hardware, in combination with the current AI boom, is one of the primary driving forces behind the shortages in the first place.

However, according to Michael Burry (the investor famously portrayed in Hollywood movie The Big Short ), Nvidia's purchase obligation figures are "troubling". They've jumped to $95.2 billion from $16.1 billion at the same time last year, supposedly because TSMC demanded longer term contracts and more cash to fund more chip fab and packaging capacity.

"To be clear, [Nvidia] has been forced to place non-cancellable purchase orders well before demand is known" says Burry. Should demand for its products suddenly drop (due to, say, a theoretical AI bubble burst), Nvidia is potentially at risk of holding the bag.

It's all very circular, isn't it? The tech industry is a complicated beast, and global supply chains and economic forces complicate that mix even further. And while Nvidia has good reason to be cheerful right now, there's a slight tenseness to some of these remarks that, (along with a tepid market response to its financials) is difficult not to read as preparation towards potentially choppier seas to come.