How Nvidia Won the A.I. Gold Rush
Reading Time: 5 minutesIt Was Founded in a Denny’s. Now It’s Worth More Than Facebook., Nvidia valuation: Everything you need to know about the hottest A.I. stock.
Nvidia, the company that dominates the market for graphics processing units, was once known mostly in the video game world. But these days, Nvidia GPUs are also the go-to source for the massive computing power needed to run generative A.I. systems—and the recent explosion in A.I. hype has propelled the company’s stock into the stratosphere. Nvidia briefly hit a trillion-dollar valuation, putting itself in league with tech giants like Alphabet and Apple and launching a bit of a frenzy in the markets. Nvidia is looking like the first big stock win of the A.I. era, and investors are salivating.
On Sunday’s episode of What Next: TBD, I spoke with Don Clark, a freelance reporter who specializes in the chips industry, about how Nvidia rode the A.I. revolution, became the hottest chipmaker in the world, and made the entire A.I. craze suddenly seem very real. Our conversation has been edited and condensed for clarity.
Emily Peck: In 1993, Nvidia was just an idea that CEO Jensen Huang and a couple of his friends were mapping out inside a Denny’s—the stuff of Silicon Valley myth. At that moment, what were they focused on?
Don Clark: They basically set out to do the graphics job. Gaming was a big thing. CPUs didn’t do it very well, so they started in that business and they rode it really hard—basically anything that’s visual about computing, they were there. They were always involved in the chips that made movies, chips that scientists use to visualize things. Anything that involves painting images on a screen, Nvidia has just been pushing the envelope constantly. They’ve spent $37 billion in research since the company’s inception.
Is there something about Jensen that makes him at the forefront of this, something that is making him take risks that others aren’t?
Generally speaking, when your CEO is very deep technically, those are the glory days of any company. When Bill Gates was running Microsoft, they were kicking ass; when Steve Jobs was running Apple, they were kicking ass. The great leaders who have really helped the industry, no engineer can snow them about, ‘Oh, it’s too complicated,’ or ‘We can’t do it.’ Jensen is very, very deep technically, and he reads all the scientific literature, he talks to the scientists directly. He was a young maverick in 1993, and now he’s 60—but he still gives off that energy.
Nvidia is uniquely positioned to capitalize on the A.I. rush. Their chips are some of the most advanced on the market, and they’ve been the leading chipmaker that powers A.I. systems for almost a decade now. What does that mean for the company?
There’s an argument to be made that A.I. is going to change every single bit of software. Think of every single thing that has intelligence in it, from your toaster to your car—it all has software in it. Jensen describes basically how the many trillions of dollars of investment in the data centers of the world are all going to be changed to do this kind of A.I. way of working. Nvidia famously was in phones and decided to get out of it; they just decided to focus on data centers.
This isn’t the first time Nvidia has seen immense growth on the back of a new technology it powers. During the crypto boom, Nvidia GPUs were highly sought-after by crypto miners, and as crypto went gangbusters, Nvidia’s stocks soared, only to crash back down to earth along with the crypto markets. What makes the A.I. boom distinct?
Basically, crypto miners were competing with gamers for the same kind of GPUs used to power video games, and so the stock got this bubble. It was very hard to quantify because nobody quite knew how much of Nvidia’s numbers reflected the crypto boom, and so they got hit when it all sort of unwound. But the A.I. boom is about changing everything we do. I mean, every Google search you do now is powered by A.I.; every time you look up somebody on Facebook and people are recommended, that’s A.I. It’s not a fad, it is inevitable.
I cover markets for Axios and we’ve been watching Nvidia stock do really well this year. But when it recently touched a trillion-dollar valuation—in league with Apple, Amazon, Microsoft—that felt like it came out of nowhere. Did it surprise you?
I knew it was going to be a big quarter, but I did not expect it was going to be like that. The markets are always six months ahead of predicting these cycles. Last year was a terrible year for semiconductor stocks. But then, if you think the cycle’s going to turn, you want to be the first person to bet on getting in there—so basically there was a lot of premature betting that there was going to be this turnaround.
Nvidia has seen a rush of orders for its chips—why is that? Was it the introduction of ChatGPT that kind of upped the level of competition in the overall A.I. market and pushed companies to ramp up?
That’s basically what happened. Microsoft and OpenAI did this deal, and it was announced last year, with Nvidia saying tens of thousands of GPUs were involved. So everyone else realized they had to up their generative A.I. game. All these cloud providers are basically using GPUs in two ways. They have their own A.I. jobs that they’re doing internally for themselves, and then, with the exception of Meta, they’re also selling computing cycles to other people. So if you’re a startup and you want to do A.I., what you’re usually doing is not buying a GPU, you’re going to AWS and using their Nvidia-powered computing service.
But because of how much companies rely on Nvidia for their infrastructure, Nvidia’s biggest competitors are also their biggest customers, right?
I would say the most serious competition to Nvidia is the internally developed A.I. chips at Google and Amazon, and because they know the job pretty specifically and they can tailor their software for it, they can get a pretty good cost reduction in doing this A.I. work.
Google’s most famous for doing it. They do some of their own work and sell some work on their own TPU chips. Amazon, which has done a lot of its own chips for other parts of the computing jobs, recently introduced a couple of A.I. chips itself, which it says are starting to get traction, although it’s pretty early days.
I believe you that everything’s going to be running on A.I., and it’s the future—but it still has this feeling, looking at the stock market, looking at Nvidia’s stock price and all the coverage right now … it has bubble vibes. It reminds me of the dot-com boom.
I’m not defending the current stock price of Nvidia, because there’s all kinds of speculative stuff in there. And the money flows like, ‘Oh, I’m a fund and I need to get some A.I. in my portfolio, who can I buy?’ So if we’re having this conversation two years from now, would I think Nvidia’s stock price would be where it is now? I wouldn’t say it’s guaranteed at all.
I wouldn’t discount anything about the revenue they’re going to get from A.I. The question is going to be how is that factored into how much the stock price is already inflated. That’s one of the things about this whole semiconductor space: It’s not enough to build one great chip, you have to have a roadmap of better, better, better, and each one of those things costs hundreds of millions of dollars to develop. So it’s not a game for the faint of heart.
How has Nvidia simplified getting into the A.I. business?
People underestimate the software. Nvidia makes it so easy, relatively speaking, to get into A.I. They have a university to teach people how to do stuff, they have their own supercomputers that sell cycles to other people, they sell reference designs for other server makers to make things, they have all these pretrained A.I. models that they give you for specific jobs and specific industries. They have built up just a huge software moat around their business.
Reference: https://slate.com/technology/2023/06/nvidia-valuation-ai-stock-chips.html
Ref: slate
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