THE STATE OF NVIDIA: Nvidia is going to be the world’s largest
company. For years, haters have been saying that Nvidia’s time at the top is almost over. As soon
as the custom PC hype dies down, Nvidia will get crushed. As soon as the Bitcoin mining craze ends,
Nvidia will be crushed. As soon as the supply chain nightmare ends, Nvidia will be crushed.
But, time and time again, Nvidia has shown more resilience than any big tech stock on the market.
For example, just last year, Nvidia saw a 68% sell off due to the recession and general fears about
tech. But, unlike Intel who stayed down, Nvidia has already rebounded a 158%. In fact, they’re
only 20% away from their all time highs as we speak. This makes Nvidia the 7th largest company
in the world with a market cap of $650 billion. But, that’s not to say that the haters don’t
have some valid concerns like Nvidia’s valuation. Nvidia is hands down the most richly valued big
tech company, even more richly valued than Tesla. Take their financials for example. In the past 12
months, Nvidia has only pulled in $4.3 billion in net income. For perspective, if Apple was the
same size as Nvidia, they would be pulling in $25 billion or over 5 times more. But, just because
Nvidia has a rich valuation doesn’t mean that they wont continue growing in terms of fundamentals and
market cap. In fact, it’s highly likely that this is the case. They’ve got a foot in consumer grade
products, a foot in enterprise grade products, and a ginormous foot in AI. But, it wasn’t always like
this. Nvidia has been around since 1993, and up until 2016, this is how their stock graph looked.
So, here’s how Nvida went from being a no name background company to becoming the world’s largest
semi conductor company all within a matter of 7 years and why all of this is just the beginning.
BITCOIN BANANZA:
Taking a look back, Nvidia’s exponential run can be traced back to early to mid 2016. At the time,
Nvidia primarily served a niche market of gamers. They had a decent presence in enterprise. Their
most notable enterprise client was likely Tesla. If you didn’t know, it was Nvidia’s GPUs that were
initially powering Tesla’s autonomous features. But, Tesla itself wasn’t exactly a big company.
In fact, they were simply fighting for their own survival and they were actually most shorted stock
of all time. So, really, Nvidia’s main business was selling gpus to gamers, but all of this would
change with Bitcoin’s bull run. You might be asking what does Bitcoin have to do with GPUs,
well the answer is actually everything. The way that Bitcoins become available on the market is
through a computationally intense process called mining. And it turns out that Nvidia
GPUs are often the most cost effective way to mine various crypto currencies. Since then,
many of the top cryptos have actually become too computationally intense for Nvidia GPUs to
handle or they’ve switched to a proof of stake model which eliminates the need for GPUs. But,
despite this, the vast majority of the most profitable GPUs are still from Nvidia. So,
you can imagine how lucrative this was back in the day. Miners would go out and buy dozens, hundreds,
thousands of GPUs each. As you would imagine, this led to an extraordinary amount of demand and it
wasn’t long until Nvidia’s supply started running out, leading to GPU prices skyrocketing. Nvidia
GPUs were regularly selling for 50 to 100% more on secondary markets and Nvidia actually got a bunch
of flak from the gaming community. Many of them felt that Nvidia was selling into this fad instead
of supporting their main demographic. They felt that Nvidia should be implementing quantity limits
and nerfing the mining power of their cards to ensure that gamers could still get GPUs for MSRP,
but this didn’t exactly happen. Nvidia very much played into the mining craze and let the miners
establish a new normal price for GPUs. This led to a mini movement against Nvidia where a bunch
of gamers switched to AMD. AMD was crushing it against Intel with their Ryzen series,
so many gamers were hopeful that they would also be able to take on Nvidia,
but this never really materialized. While AMD has been able to hold their own against Nvidia,
Nvidia is still very much the GPU king. But, it wasn’t all good news for Nvidia back in 2018.
Bitcoin’s price would peak out at the end of 2017 and it would dramatically crash 83% right after.
This took out much of the appeal of crypto mining and it didn’t take long for miners to leave the
scene. For gamers, this was Nvidia’s judgement day. They had to pay the price for siding with
miners instead of gamers. And I guess they did pay some price. Once the mining craze died down,
Nvidia’s stock would drop 57%. But, with that being said, the mining boom allowed Nvidia to
grow 11X in the prior 18 months, so I don’t think they were exactly sad. If anything they
were optimistic as they were determined to make the price increases due to mining permanent.
THE PRICES STICK: Everyone was expecting
for GPU prices to plummet as soon the miners left, but Nvidia had a different idea. You see, just as
the mining craze was dying down, Nvidia would come out with the 2000 series of GPUs. Let’s just say,
it was substantially more expensive especially when it came to the high end cards. The GTX 1080
for example launched for $600. The RTX 2080 though came in at $700 to $800. The real difference was
in the TI series though. The GTX 1080 ti launched for $700. The RTX 2080 ti, however, came in at
$1000 to $1100 or 50% more. Nvidia’s justification for these price increases were that they added
ray tracing technology which is a notable upgrade, but it didn’t exactly warrant a price hike and the
proof can be seen in Nvidia’s financials. Between 2016 and 2018, Nvidia’s net margin would nearly
triple from just 13% to 37%. Clearly, the cost difference to add RTX was nowhere near as large
as the price jumps, but gamers were still hopeful. They were optimistic that Nvidia would realize
that these prices were unaffordable for most gamers and that they would eventually decrease
prices. But, Nvidia would stubbornly hold on and gamers would eventually compromise. The ones that
didn’t would end up having to pay even more as Nvidia would experience yet another boom in
2020. As everyone knows, 2020 brought with it the pandemic which caused everyone to stay at home.
This led to an unprecedented number of people buying gaming PCs and getting into gaming. But,
the pandemic didn’t just bring more demand, it also brought less supply. When China is shut down
every other week and there are new obstacles in every step of the production process from
factories to logistics, it’s no wonder why companies entered a supply chain crises. For
companies that relied on volume of goods sold, this was devastating. But, for a company like
Nvidia who could just jack up the prices, this was a gold rush, and don’t even get me started on
the secondary markets. Remember how prices were hiked 50 to 100% during the mining boom. Well,
this time prices would be hiked 3, 5 10X. People were literally auctioning off GPUs as if it was
some sort of antique product and Nvidia would of course just fuel the fire with yet another series
of cards: the 3000 series. This time Nvidia took the Apple approach. They realized that they get a
bunch of backlash when they increase the price of a given series. So, they decided, why not just add
another tier of GPUs like the iPhone Pro series. And with that we saw the launch of the RTX 3090
for $1500 and the RTX 3090 TI for $2000. But, it didn’t stop right there either. If you’re familiar
with Bitcoin, you know that it usually follows a 4 year cycle, and it had already been 4 years
since 2016. Yes, the miners were back and this time Nvidia was ready for them. In early 2021,
Nvidia would go ahead and nerf gaming GPUs with software so that they couldn’t be used for mining.
Instead, they would go ahead and launch mining specific GPUs that cost um $4700. Originally,
gamers were hoping that such a move would be beneficial for them. But now, they were paying
a ludicrous amount and miners were paying an even more ludicrous amount. If you thought gamers and
miners were lucrative though, just wait till you hear what gold mine they tripped on next.
AI BOOM:
It turns out that GPUs aren’t just capable of making your games look better. They’re
also a requirement for machine learning and AI training. I’m sure you know about ChatGPT by now.
ChatGPT was trained using a bunch of Nvidia GPUs called the H100. The H100 runs between $10 and
$20,000 depending on what specs you get, we can call it $15,000 on average. This is obviously an
unreasonable amount for you an me, but surely that’s nothing for a company right? Well,
that would be the case until you realize that ChatGPT needed 10,000 of these suckers just for
the initial training. If you haven’t done the math yet, that’s $150 million. Even accounting
for a discount due to the scale, we’re talking about $100 million and that was just for phase
one of development for 1 project. Given the success of ChatGPT, you can bet that
every tech company and their mothers want a piece of the pie. The most notable example is
probably Google Bard. Over the past couple of years, Google has tried to develop their own
computational devices called TPUs, but Google has by no means been able to replace Nvidia. In fact,
I don’t even think they’re trying to replace Nvidia as they’re actually promoting Nvidia
products. They’re literally cloudifying Nvidia GPUs and making that into it’s own business. If
buying this much computation power for your AI business is bit too much, don’t worry,
you can just rent it from Google instead. Most tech giants, however, are opting to just work with
Nvidia directly though. Tesla for example is using 5760 Nvidia A100 GPUs to train their self driving.
Each of these GPUs costs a cool 10 Gs, so Tesla’s setup costs $57 million not including the setup,
maintenance, and lease. A similar story can be seen with Meta as well. They’ve actually been
using Nvidia GPUs since 2017 when got access to 22,000 of their V100 GPUs. As you can see, Nvidia
is not just a monopoly in this sector, they’re literally the only viable solution. And that’s not
because of a lack of competition. Companies like AMD, Intel, Qualcomm, TSMC, and AWS all see this
opportunity. It’s just extraordinarily difficult to catch up to Nvidia when they have a lead of
20 to 30 years in the GPU scene. So, let’s just say, Nvidia ain’t going anywhere anytime soon.
THE FUTURE OF NVIDIA: Hearing
all this, you might be saying that Nvidia just got lucky with all these booms. They just got lucky
that there was a gaming boom and then a mining boom and then a machine learning boom and then
an AI boom, but that’s completely untrue. Luck is what happens when preparation meets opportunity.
The reality is that Nvidia saw this vision 30 years ago in 1993. It simply wasn’t till 23
years later that the rest of the world realized how vital this technology really was. First, it
was the gaming community, then it was the mining community, then it was the enterprise community,
and now it’s the AI community, but they’re by no means the last to realize the potential of
GPUs. While it’s unfortunate that it took so long for everyone else to get on the same page,
it gave Nvidia an extraordinary amount of time to cement themselves as the undisputed king.
And unlike Intel who blundered their lead by stagnating, Nvidia is still innovating
as fast as ever which has made it impossible for anyone else to outdo them. Now of course,
all companies will eventually become like Intel, but that’s not happening to Nvidia
in the imminent future. Here’s what’s happening instead. Tech itself is a gold mine and you have
all these companies Google, Microsoft, Tesla, Apple, Facebook all digging for gold. So far,
they’ve been pretty successful at finding gold, but whether they hit gold or not doesn’t matter
for Nvidia because they’re the ones selling the shovels and that’s why Nvidia will become
the world’s largest company. The only company that can steal this title from Nvidia in my
opinion is Tesla. Do you agree? Comment that down below. Also, drop a like if you would like to see
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