In the past year, they had a revenue of 60B $ and net income of 30B $. Absolutely amazing numbers, I agree. The year before they had a revenue of 30B $ and a net income of 4.5B $ - and it was a rather good year. What happens next of course depend of how you judge the situation - was it a peak hype demand ? Will it stabilize now ? Grow at current extraordinary rates ?
Scenario 1 - margins get back to normal due to hype going down, competition improving etc - in this case the company is worth at best ~200B $ - or 1/10 of what it is now.
Scenario 2 - they maintain current revenue and the exceptional margins - the company would be worth ~1T - or 1/2 of what it is now.
Scenario 3 - they current growth rate (based on past 12 months) continue for ~5 years. This is the case the company is worth ~2T $.
But they are in a business where most money come from a handful of customers, all of which are working on similar chips - and given the sums in play now, the incentives are *very* strong.
My opinion, is that the company is already priced for perfection - basically the current price reflects the perfect scenario. I struggle to see any upside, unless we have AGI in the next 5 years and it decides it can only run on Nvidia chips.
All of this is akin to Tesla in the past years. They grew from a small startup to a medium car maker - the % growth rate was huge of course - an amazing achievement in itself. But people projected that the % growth rate would continue - and the stock was priced accordingly. Reality is catching up on Tesla, even if some projections are still absolutely crazy.
It does no good to design similar or even superior chips if you can't get them fabbed. How much of the world's fab capacity has Nvidia already reserved?
They are priced as if they are the only ones who are capable of creating chips that can crunch LLM algos. But AMD, Google, Intel, and even Apple are also capable.
Apple is in talks with Google to bring Gemini to the iPhone, and it will obviously also be on android phones. So almost every phone on earth is poised to be using Gemini in the near future, and Gemini runs entirely on Google's own custom hardware (which is at parity or better than nVidia's offerings anyway).
This seems as good a place as any to be Corrected by the Internet, so... correct me if I'm wrong.
Making a graphics chip that is as good as Nvidia: Very difficult. Huge moat, huge effort, lots of barriers, lots of APIs, lot of experience, lots of decades of experience to overcome.
Making something that can run a NN: Much, much easier. I'd guess, start-up level feasible. The math is much simpler. There's a lot of it, but my biggest concern would be less about pulling it off and more around whether my custom hardware is still the correct custom hardware by the time it is released. You'd think you could even eke out a bit of a performance advantage in not having all the other graphics stuff around. LLMs in their current state are characterized by vast swathes of input data and unbelievably repetitive number crunching, not complicated silicon architectures and decades-refined algorithms. (I mean, the algorithms are decades refined, but they're still simple as programs go.)
I understand nVidia's graphics moat. I do not understand the moat implied by their stock valuation, that as you say, they are the only people who will ever be able to build AI hardware. That doesn't seem remotely true.
So... correct me Internet. Explain why nVidia has persistent advantages in the specific field of neural nets that can not be overcome. I'm seriously listening, because I'm curious; this is a deliberate Cunningham's Law invocation, not me speaking from authority.
72 P/E ratio while they have a mere monopoly on one the most valuable resource in the world.
Competition WILL come. Maybe it's Groq, maybe AMD, maybe Cerebras. Maybe there's a stealth startup out there. Point is, they're going to be challenged soon.
Yes, CUDA, but CUDA is maaaaaybe a few tens of billion USD deep and a few (more) years wide. When the rest of the industry saw compute as a vanity market, that was sufficient. Now, it's a matter of time before margins go to, uhhh, less than 90%.
Does that make shorting a good idea? I wouldn't count on it. The market can always remain irrational longer than you can remain solvent.
I used to think that CUDA was something that would get commoditised real fast. How hard could building it be?
However, given that the nearest competitor AMD has basically given up on building a CUDA alternative, despite the fact that this could grow the company by literal trillions of dollars, I suspect the CUDA moat is much bigger than I give it credit for.
They also bought infiniband which has played a big role in being the best at clustering, though Google's TPU reconfigurable topology stuff seems really cool too.
Tesla went after them with Dojo and has still ended up splurging on big H100 clusters.
Because their stock value is highly coupled with crypto mining and AI craze.
The move from PoW to PoS for most crypto networks in combination with bust of ‘22. NVDA slid down in value.
OpenAI debuts ChatGPT in late 2022 and now it’s suddenly bumping in price as the hype and rush for GPUs from companies of all types buys up their stock of GPUs. Demand is far outpacing the supply. Nvda can’t keep up.
Thus, share price is brittle. Competition in the GPU market is dominantly owned by Nvidia. That can change, but so far openai loves using nvidia for some reason.
If you are a true believer that AI is not a craze, then the stock can only go up from here. If you think there is a chance that everyone gets bored of AI and moves on to some other fad that is not in Nvidia’s wheelhouse, then it’s probably down from here. I’m staying out of this bet: don’t have the stomach for it.
TheAlchemist|1 year ago
In the past year, they had a revenue of 60B $ and net income of 30B $. Absolutely amazing numbers, I agree. The year before they had a revenue of 30B $ and a net income of 4.5B $ - and it was a rather good year. What happens next of course depend of how you judge the situation - was it a peak hype demand ? Will it stabilize now ? Grow at current extraordinary rates ?
Scenario 1 - margins get back to normal due to hype going down, competition improving etc - in this case the company is worth at best ~200B $ - or 1/10 of what it is now.
Scenario 2 - they maintain current revenue and the exceptional margins - the company would be worth ~1T - or 1/2 of what it is now.
Scenario 3 - they current growth rate (based on past 12 months) continue for ~5 years. This is the case the company is worth ~2T $.
But they are in a business where most money come from a handful of customers, all of which are working on similar chips - and given the sums in play now, the incentives are *very* strong.
My opinion, is that the company is already priced for perfection - basically the current price reflects the perfect scenario. I struggle to see any upside, unless we have AGI in the next 5 years and it decides it can only run on Nvidia chips.
All of this is akin to Tesla in the past years. They grew from a small startup to a medium car maker - the % growth rate was huge of course - an amazing achievement in itself. But people projected that the % growth rate would continue - and the stock was priced accordingly. Reality is catching up on Tesla, even if some projections are still absolutely crazy.
CamperBob2|1 year ago
Workaccount2|1 year ago
Apple is in talks with Google to bring Gemini to the iPhone, and it will obviously also be on android phones. So almost every phone on earth is poised to be using Gemini in the near future, and Gemini runs entirely on Google's own custom hardware (which is at parity or better than nVidia's offerings anyway).
jerf|1 year ago
Making a graphics chip that is as good as Nvidia: Very difficult. Huge moat, huge effort, lots of barriers, lots of APIs, lot of experience, lots of decades of experience to overcome.
Making something that can run a NN: Much, much easier. I'd guess, start-up level feasible. The math is much simpler. There's a lot of it, but my biggest concern would be less about pulling it off and more around whether my custom hardware is still the correct custom hardware by the time it is released. You'd think you could even eke out a bit of a performance advantage in not having all the other graphics stuff around. LLMs in their current state are characterized by vast swathes of input data and unbelievably repetitive number crunching, not complicated silicon architectures and decades-refined algorithms. (I mean, the algorithms are decades refined, but they're still simple as programs go.)
I understand nVidia's graphics moat. I do not understand the moat implied by their stock valuation, that as you say, they are the only people who will ever be able to build AI hardware. That doesn't seem remotely true.
So... correct me Internet. Explain why nVidia has persistent advantages in the specific field of neural nets that can not be overcome. I'm seriously listening, because I'm curious; this is a deliberate Cunningham's Law invocation, not me speaking from authority.
drexlspivey|1 year ago
belter|1 year ago
swalsh|1 year ago
Competition WILL come. Maybe it's Groq, maybe AMD, maybe Cerebras. Maybe there's a stealth startup out there. Point is, they're going to be challenged soon.
htrp|1 year ago
It's almost impossible to manufacture at scale with good yields and leading edge fabs are almost all bought out.
smallmancontrov|1 year ago
Yes, CUDA, but CUDA is maaaaaybe a few tens of billion USD deep and a few (more) years wide. When the rest of the industry saw compute as a vanity market, that was sufficient. Now, it's a matter of time before margins go to, uhhh, less than 90%.
Does that make shorting a good idea? I wouldn't count on it. The market can always remain irrational longer than you can remain solvent.
yen223|1 year ago
However, given that the nearest competitor AMD has basically given up on building a CUDA alternative, despite the fact that this could grow the company by literal trillions of dollars, I suspect the CUDA moat is much bigger than I give it credit for.
tiahura|1 year ago
cma|1 year ago
Tesla went after them with Dojo and has still ended up splurging on big H100 clusters.
xyst|1 year ago
The move from PoW to PoS for most crypto networks in combination with bust of ‘22. NVDA slid down in value.
OpenAI debuts ChatGPT in late 2022 and now it’s suddenly bumping in price as the hype and rush for GPUs from companies of all types buys up their stock of GPUs. Demand is far outpacing the supply. Nvda can’t keep up.
Thus, share price is brittle. Competition in the GPU market is dominantly owned by Nvidia. That can change, but so far openai loves using nvidia for some reason.
ryandrake|1 year ago
Takennickname|1 year ago