Nvidia customers notified of AI-related price rises above 15%

Some Nvidia customers have been notified that prices for AI-related server hardware containing its artificial intelligence chips are set to rise by over 15 per cent, according to sources familiar with the matter. The price hikes will take effect when systems featuring the flagship Vera Rubin and Grace Blackwell chips are shipped early next year.

The extent of the increases depends on the specific Nvidia chip generation and memory configuration, according to the sources. Companies that build servers for major data center operators like Microsoft, Google, and Oracle have already informed their customers about these forthcoming price increases. Nvidia representatives did not provide comment on the matter.

The price rises highlight the significant influence of memory chip manufacturers, including Samsung Electronics, SK Hynix, and Micron Technology, amidst a surge in demand for AI infrastructure. Major tech firms like Apple and Qualcomm have also cited chip shortages as a reason for raising prices on their own products. Nvidia's AI accelerator processors, crucial for computers that run AI software, rely on dynamic random access memory (DRAM).

While memory chip manufacturers have ramped up production, they have yet to meet the soaring demand, leading to a sharp increase in commodity-like component prices. Nvidia benefits from a 75 per cent gross margin on its products, largely due to the scarcity of viable alternatives to its offerings. Nvidia has also increased prices for its gaming-oriented PC graphics cards, according to a recent report by Tom’s Hardware.

The impact of these price hikes on Nvidia's customers and potential opportunities for competitors remains to be seen, contingent on customers' ability to secure sufficient memory. Major cloud providers such as Amazon, Microsoft, Google, and Meta are working on in-house chip programs but remain dependent on Nvidia for their data center buildouts.

The price increases could also complicate the industry's ambitious AI data center buildout plans, which have already faced challenges due to project delays, labor shortages, tightening capital markets, and community opposition to new developments. Nvidia is set to release its second-quarter earnings next week, which will be closely watched by the technology industry and investors who have invested heavily in AI infrastructure with hopes of transforming the economy.