TLDR:
- Nvidia faces supply chain strain from Elon Musk’s massive chip orders for xAI
- Musk’s Colossus system uses 100,000 H100 chips, planning to double to 200,000
- Nvidia stock fell below 50-day moving average, down 3.3% Wednesday
- Third quarter results beat expectations with $35.08B in sales
- Supply chain pressures continue as AI demand grows across tech sector
Nvidia stock fell 3.3% Wednesday as reports emerged that Elon Musk’s aggressive pursuit of AI chips for his xAI venture is straining the chipmaker’s supply chain capabilities.
Internal communications at Nvidia revealed that Musk’s demands for its advanced AI processors have pushed production capacity to its limits, according to documents viewed by the Wall Street Journal. The tech billionaire’s orders center around chips needed for xAI’s Colossus training cluster, which currently uses 100,000 Nvidia H100 training chips.
The scale of xAI’s chip acquisition becomes clearer when considering Musk’s announced plans to double the cluster size to 200,000 chips in the coming months, including 50,000 of Nvidia’s more powerful H200 units. This expansion would make Colossus the largest individual AI computing cluster in the world by processor count.

Nvidia has publicly acknowledged the situation, with a company spokesperson stating, “We’ve worked hard to meet the needs of all customers and have greatly expanded the available supply today.” The statement suggests ongoing efforts to balance growing demand across multiple high-profile customers.
The pressure on Nvidia’s supply chain comes amid strong financial performance. The company reported third-quarter sales of $35.08 billion, beating analyst expectations of $33.17 billion. Earnings per share reached 81 cents, surpassing the projected 75 cents.
Oracle co-founder Larry Ellison shed light on the intense competition for Nvidia’s chips during a September investor event. He described a dinner where he and Musk spent time “begging” Nvidia CEO Jensen Huang for additional AI chips, saying,
“Please take our money. No, no take more of it. We need you to take more of our money.”
The supply chain challenges coincide with Nvidia’s stock retreating below its 50-day moving average. The stock has experienced volatility since October, moving in and out of buy zones as investors assess the company’s growth trajectory.
Third-quarter results showed nearly doubled revenue compared to the previous year’s $18.1 billion. However, analysts at Morgan Stanley noted concerns about chip shortages potentially affecting earnings and outlook, describing the September-ended period as a “transitional quarter.”
xAI’s ambitious chip acquisition plans support the development of its large language model, Grok, which aims to compete with OpenAI’s GPT-4. The AI startup has attracted substantial investment, raising $6 billion earlier this year at a $24 billion valuation.
The broader AI chip market shows no signs of cooling. UBS Global Wealth Management reports that Big Tech’s combined capital expenditure is expected to reach $218 billion this year and $254 billion in 2025, indicating sustained demand for AI infrastructure.
Despite these pressures, analysts maintain optimistic outlooks. Piper Sandler raised their price target to $175 from $140, projecting a 20% upside for the stock. They estimate the total AI accelerator market could reach $70 billion in 2025, with Nvidia positioned as a primary beneficiary.
Melius Research similarly increased their target to $185 from $165, maintaining a buy rating despite current market challenges. The company has also gained additional market recognition, recently replacing Intel in the Dow Jones Industrial Average.
Looking at technical indicators, Nvidia’s stock has shown some weakness. The relative strength line has declined sharply, indicating underperformance compared to the S&P 500 index. Additionally, institutional investors have shown caution, reflected in a D- Accumulation/Distribution Rating.
The stock’s current trading patterns suggest potential support levels to watch. Investors are monitoring the October 31 low of $132.11 and the October 2 low of $115.14 as key technical markers.
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