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In Saturday’s newsletter, I broke down why the entire world is quite literally relying on Nvidia to hold up the global economy (if you missed it, you can read it first here)
You all loved that issue, today, let’s talk about why the world is obsessed with this company.
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Surprise, surprise, it has a lot to do with AI.
To distill it, there is an AI Gold Rush happening right now.
All tech companies worldwide, in fact, all companies in general see insane opportunities to either save costs by firing people or do things more efficiently AKA - make more money from A.
Alright, let’s say that you want to get into AI.
Let's say you're this guy panning for gold and your name is Mark Zuckerberg (for no real reason) and you want to get in on this gold rush.
You think AI is going to make your business more competitive and you're going to make more money.
Well, then you need that pan he’s got alongside pickaxes and shovels.
During the Gold Rush, most would-be miners lost money, but people who sold them picks, shovels, tents and blue-jeans made a nice profit
Fortunately for them, the only seller in town of picks and shovels of the AI Gold Rush is NVIDIA.
Basically, what you need to train large language models like ChatGPT or perform machine learning is NVIDIA’s GPU data centres like these.
Nvidia’s H100 Tensor Core GPU
The H100 - these things can cost around $50,000 and you know how much they cost to make?
Around $3,000!
Nvidia takes some silicon sand out of the ground, designs it and gets people in Taiwan to make it.
The whole thing costs between $3,000-$3,500 to make.
They sell it for close to $50,000 and it's one of the greatest businesses in the world because nobody else can design these chips like Nvidia currently and all of these other tech companies - Microsoft, Google, Meta, companies in China, they all see the money from the AI gold rush but they all have to stop by Nvidia and buy endless amounts of these h100s and other data centre solutions.
This is why Nvidia has gone from a nominally gaming company to this :
This is their projected income statement announced at their recent earnings release.
Notice how gaming is a relatively small part of this?
The massive business - $18.4 billion of revenue came from AI data centres.
Gaming is just $3 billion.
If you flash back real quick, just a year and a half ago, gaming and data centres were almost equal.
Flashback a year before that and data centres was behind gaming!
In a very short period of time, the sales of these data centres have catapulted Nvidia’s profitability.
If you go back to the projected income statement above, you’ll notice that gaming growth in revenue is 0% quarter over quarter!
This is no longer in any real stretch of the imagination a gaming company at all.
They have completely pivoted to being an AI solutions company for other tech companies and that has made them one of the most valuable companies on Earth.
For now, Jensen Huang’s AI data centres are making him and his shareholders rich while other tech companies take all the risk.
If you enjoyed this issue, you're probably interested in the weird and interesting world of marketing and finance, I think you'll enjoy these:
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