Nvidia blowout earnings spur mixed reaction in its Asian supply chain, here’s why:

On August 26, Nvidia reported impressive quarterly earnings and guidance, causing its shares to surge over 5% in after-hours trading. However, the impact on the company's Asian suppliers was mixed. Korean memory manufacturers SK Hynix and Samsung Electronics saw positive reactions (+3.55%, +2.49% respectively), as Nvidia absorbed rising HBM costs, validating their bargaining power.

Taiwanese chipmaker TSMC experienced a modest increase (+0.83%), but Japanese equipment firms saw a decline (Advantest -2.18%, Disco -1.27%). The divergence in reactions stemmed from Nvidia's Q4 gross margins expected to compress to 71-72%, with a potential recovery toward 72-73% in FY2028, once higher memory prices take effect.

For memory makers, Nvidia's willingness to pay up for extreme pricing conditions in memory was a bullish sign, boosting SK Hynix and Samsung Electronics. Equipment manufacturers, however, faced cautionary signals. Nvidia's margin compression could translate to capex caution at the upstream end of the supply chain, potentially affecting demand for their products.

Advantest, a key supplier of GPU test systems for Nvidia, saw a slight decline (-2.18%), suggesting the company may be slowing the pace of incremental capacity additions as it works through existing orders. TSMC's reaction was counterintuitive, as it fabricated 100% of Nvidia's GPUs; a beat and raise were not universally positive.

TSMC's margin compression, driven by Nvidia's potential wafer price concessions, could affect its production capacity and meet increasing demand from Nvidia for advanced AI processors. The market's interpretation of Nvidia's earnings varied among its supply chain, with pricing power and capex frontier companies experiencing selective bullishness and caution, respectively.