As the global tech sector grapples with supply chain disruptions, NVIDIA Corporation (NVDA  ) has reportedly made a bold move to triple the production of its highly sought-after H100 AI processor for the year 2024. This strategic response comes as supply chain challenges reverberate across the industry, impacting not only Nvidia but also major players like Hon Hai Precision Industry Co Ltd (HNHPF  ), better known as Foxconn, and Lenovo (LNVGF  ).

The H100 AI Processor's Ascension

Nvidia is set to triple the production of its top-tier H100 AI processor, aiming to deliver between 1.5 million and 2 million units in 2024, the Financial Times reported, citing three people close to the company. This ambitious plan marks a substantial leap from the 500,000 units anticipated this year. AI processors are already sold out well into 2024, underscoring the insatiable appetite for Nvidia's chips.

Supply Chain Struggles Ripple Across Sector

However, Nvidia's surge in production is emblematic of broader supply chain challenges felt across the tech sector, including cloud service providers like Microsoft, Amazon, and Google, according to FT. With cloud service providers increasingly channeling investments into AI infrastructure, general-purpose servers are seeing a slowdown in demand, resulting in revenue drops for companies like Lenovo.

The Path Ahead For AI Servers

Despite the current challenges, the future of AI servers appears promising. Demand for AI server chips is projected to grow by nearly 50% annually over the next five years, with Taiwan Semiconductor Manufacturing Company (TSM  ) foreseeing this trend, as per the report. However, this growth might not be sufficient to counteract downward pressures stemming from the broader tech slump caused by economic downturns.

Optimism Amid The Storm

While the current supply chain bottlenecks present challenges, the sector is poised to reap massive rewards once these issues abate. Shipments of servers for training AI algorithms are projected to triple in the coming year, while AI servers' share of the overall server market is expected to rise from 7% last year to approximately 20% in 2027, as per the report.

Why It Matters

With soaring demand for artificial intelligence products, Nvidia has emerged as a crucial player in powering AI infrastructure. In its previous earnings report, Nvidia underscored the surging demand for its processors, particularly those driving large language models such as OpenAI's ChatGPT. This robust demand has led to a projected revenue surge of nearly two-thirds and a quadrupling of earnings per share for the quarter ending in July. Nvidia is due to report its second-quarter earnings later on Wednesday.

Price Action: Nvidia stock closed 2.7% lower at $456.68 on Tuesday and was up 0.3% in after-hours trading, according to data from Benzinga Pro.