There's a certain kind of computer chip that has become
incredibly important to the modern world. The GPU short for
graphics processing unit. GPU is bring digital worlds to life. In
the last few years, they've become v computer chip of choice
among certain crypto miners. They're also becoming
increasingly more important and cutting edge fields like self
driving cars and supercomputing. But like every other kind of
computer chip and 2021 GPUs remain in short supply. The
current
state of the chip market in terms of gamer perception is
utter Bedlam. If you are interested in doing anything in
PC gaming, that is anywhere near cutting edge, you're either
trolling through as many eBay listings as possible, lining up
at retailers the instant they might have availability for a
new card, or giving up.
GPUs are specifically designed computer chips that process
complex calculations alongside a CPU or a central processing
unit. All computers have CPUs, more and more. They also now
have GPUs either to play games handle complex visual software,
or to conduct parallel processing.
Now, why did we make that shift? because historically,
computation used to be serial, that let's say I give you a
certain workload, and you were able to divide that workload
into smaller pieces. And a CPU would be able to go through each
of those many workloads serially. So as an example, if
there is a picture, and I asked you to find the shape of an
animal in the picture, I can bear it that picture into a
grid. And I can go through those grid points one by one, which is
serial processing, or do you know what I can do is I can look
at every grid point with its individual processor all at the
same time. That's parallel processing. The Covid
19 pandemic wreaked havoc on the world supply chains,
semiconductors quickly became very hard to find. When COVID-19
first emerged, strict lockdowns caused demand to plummet across
entire industries. But when lockdowns lifted and vaccines
rolled out, demand came back in a big way helped, of course by
generous government stimulus programs. And since computer
chips and semiconductors are now used in virtually everything,
supply dried up as demand came roaring back. Now for GPUs
demand came from a few camps. You had your PC gamers, your
crypto miners and people who wanted to hoard graphic cards in
order to sell them later, GPUs became super hard to find retail
prices on the secondary market, they sold for several times
their MSRP.
Now, the tough part is that, you know, in semies, we are just
going through this tough period of supply shortages. So one way
or another, I think we would have gotten this issue whether
even if, and just crypto miners are exacerbating that problem
somewhat.
Historically, GPUs were used to power video game graphics from
the arcade rigs to the early home gaming consoles. And for
the most part, that's what they still do. The GPU business as we
know it, though, got started in the 1990s. Computer games were
advancing quickly and they needed more processing power.
Companies like 3d FX popped up to help PC gamers play the
latest games without having to buy entirely new computers. And
they did that by introducing video cards to help process
increasingly complex 3d graphics. In 1999, Nvidia
announced the GeForce 256 calling it the world's first GPU
that kicks off an arms race between Nvidia which ended up
buying 3d FX and a Canadian company called ATI which was
bought by Advanced Micro Devices in 2006. For $5.4 billion. That
arms race is still very much going on between Nvidia and AMD.
But yeah, I mean, like Nvidia and AMD are the two big retail
brands for gamers such that like they kind of divide themselves
into these tribal identities around like which brand of
chipmaker they support in video folks, LEED Green and the AMD
people are Team Red. Yeah, they really want to hold on to this
this core loyal customer base gamers.
GPU makers like Nvidia and AMD are known for making games look
more and more amazing. Each year. The companies hold flashy
events to launch new graphics cards. With the latest ray
tracing technologies. They sell GPUs to data center clients as
well. In fact Nvidia brought in about $2.4 billion last quarter
from its data center business a record number. Its gaming
business, though brought in $3.1 billion during the same quarter
also record At 5% higher than the year before, there's another
group of retail consumers who want the same GPUs as gamers,
crypto miners.
And if you go to a Best Buy, you cannot buy an ASIC. You cannot
buy, you know, programmable chip. So you can really buy a
graphics processor and you know, if you buy it and you're not
using it for ethereum a lot of the time, I mean, you can use it
for gaming also, the summary point is that right now GPUs are
offering that computation of flexibility and ease of
purchasing that matches well with where etereum is in its
lifecycle.
Covid also sparked a boom in gaming with everyone stuck
inside the supply chain crunch seen across all sorts of other
industries hate computer chips the hardest, and video remains
the leader and the GPU industry by a wide margin controlling
about 83% of the discrete GPU market and the most recent
quarter. AMD is market share rests in about 17% as of last
quarter, Nvidia needed to do something to ensure that gamers
had access to GPUs. First in early 2021 introduced hash
limiters to its latest line of graphics cards. crypto miners
quickly figured out a way to beat them.
Nvidia has essentially like just nuked its its own graphics cards
to try to weaken them in key ways to divide them between the
chips that are meant for the gamers and the chips that are
meant for the crypto miners. They are trying to keep this
core block of super dedicated customers happy. It's just like
the supply chain is so screwed up. Like none of this has worked
its way through the system yet to meet a demand from gamers for
the latest graphics cards.
The company also released what's called CMP chips or chips,
specifically designed for crypto mining to help ensure that GPU
supplies remain in stock for gamers sales for that chip pale
in comparison to gaming chips. And its most recent quarter and
video said CMP chips brought in $266 million in sales, which is
lower than the 400 million the company had predicted in May.
What's more in video CEO says the chip shortage will persist
into 2022.
They're kind of stuck in this very strange conundrum of having
a product that they cannot keep on store shelves, but also
having a reputation of game fans being furious about them not
being taken care of.
The Ethereum blockchain is supposed to undergo a massive
overhaul in 2022. Going from a proof of work protocol to proof
of stake. This has big implications for how ethereum
the world's second largest cryptocurrency gets mined, the
world's largest digital currency. Bitcoin has grown so
large in recent years that hardware companies now make
computer chips, specifically designed to mine Bitcoin.
They're called ASIC chips, which stands for application specific
integrated circuit.
But where we are today is that the ethereum still requires a
lot of complex calculations. But it is not at a point yet where
you can design those ASICs, right where the algorithms keep
on changing. So there is always that increasing complexity. And
to handle that increasing complexity, you need something
that can be programmed very quickly.
proof of work requires machines to complete increasingly complex
math equations to generate new coins. This requires more and
more computing power and requires more and more energy.
It's how Bitcoin gets mined and ether as well. The ethereum
community, though, plans to switch to a proof of stake model
that requires users to put up their existing cache of ether as
a way to verify transactions and create new coins that would
completely overhaul the way that ether gets mined today, and it
would cause demand for GPUs among ether miners to plummet.
The real interesting question to me is that if you are a miner,
and if you think that ethereum is indeed going to go to this
proof of stake, why are you still bidding up the price of
this card? Why, you know, 123 times above MSRP. So maybe that
market is implicitly trying to tell us that that don't be
fixated in terms of, Oh, this is Bitcoin, there's ethereum and
this is this coin or that coin, that people who are buying this,
maybe think that the need for complexity in this market will
never go away. So to them even paying up for this technology
today. It's still worth it
Nividia's doing great at selling out this very expensive thing.
But that doesn't mean that they're going to own an entire
market, an entire number of users, and they're interested in
things like cloud. They like Microsoft have a whole cloud
system and Google and Ubisoft and many other companies, even
Sony have these online streaming services where they have their
own server farms with their own giant graphics card slapped in
You just log in, and you use the internet's back and forth
latency to play the games you want. So there could be a future
in a few years where you're not hunting for a GPU, or a console
or a big box in your home, and you simply log in and pay per
month, and the idea of the millions and millions of people
who would pay per month and give you that recurring revenue.
That's, That, to me is arguably a more interesting future than
the big robust graphics card.