Applied Digital’s Earnings Take a Hit as NVIDIA Chip Shortage Impacts Networking Components
In a recent development, Applied Digital (APLD.O) has announced a significant drop in its expected earnings for the full year. This has been attributed to a tight supply of networking components produced by chipmaker NVIDIA, which has caused delays in deliveries. As a result, the company’s shares have plummeted by nearly 23%.
The primary cause of the supply chain disruption has been identified as the delay in NVIDIA’s InfiniBand, a critical component that acts as an ethernet cable, connecting clusters of chips across servers. The delay has had a ripple effect on Applied Digital, as it has forced the company to delay the deliveries of NVIDIA graphics processing units (GPUs) due to bottlenecks in InfiniBand.
NVIDIA’s artificial intelligence chips and related technology have been in high demand, particularly for the adoption of generative artificial intelligence by various companies. While Applied Digital has not reported any issues with the supply of AI chips, the challenges related to InfiniBand have had a significant impact on the company’s operations.
However, there is some optimistic news on the horizon. Applied Digital has stated that deliveries of the networking equipment have improved in recent weeks, indicating a potential easing of the supply chain disruption caused by the InfiniBand delays.
Despite this positive sign, Applied Digital now anticipates that its total revenue for 2024 will fall below the previously expected range of $385 million to $405 million. Additionally, the company has revised its forecast for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), which is expected to be below the previous range of $195 million to $205 million. However, the revised figures have not been disclosed at this time.
Furthermore, Applied Digital’s second-quarter revenue did not meet expectations. According to data from LSEG, the company reported revenue of $42.2 million for the quarter ended on November 30, falling short of analysts’ average estimate of $57.3 million.
The impact of the NVIDIA chip shortage and InfiniBand delays on Applied Digital’s earnings highlights the challenges faced by companies reliant on the semiconductor industry. The global chip shortage has disrupted various sectors, including automotive, consumer electronics, and now networking components.
As the supply chain gradually recovers from these disruptions, companies like Applied Digital will need to closely monitor the availability of critical components. Building resilience in supply chains and developing contingency plans for such situations will be vital to mitigate the financial impact of future disruptions.
In conclusion, Applied Digital’s earnings have suffered a setback due to the NVIDIA chip shortage and the resulting delays in networking components. The company’s shares have taken a significant hit, and its full-year revenue expectations have been lowered. However, recent improvements in equipment deliveries suggest a potential easing of the supply chain disruption. It remains crucial for companies to adopt measures to enhance supply chain resilience and minimize the financial impact of future disruptions in an increasingly interconnected global marketplace.
