Big dreams
Jensen Huang,Nvidia’s chief executive and principal founder,always had big ambitions.
The company decided to focus on video games in the 1990s when Huang observed demand for increasingly advanced computer graphics and predicted a need for drastically more powerful chips as games moved towards more immersive and 3D worlds.
When Nvidia’s share price hit $US100,Huang had the company’s logo tattooed on his arm.
But even he would have failed to see the AI rush that boosted his personal fortune to $US42 billion.
Nvidia’s work on computer graphics in the 1990s led it to invent the graphics processing unit (GPU),a type of microchip dedicated to computer gaming and video tasks. GPUs,however,also excel at other types of number crunching.
Nvidia thrived during the cryptocurrency booms of 2017 and 2021,as its processors proved to be highly proficient at the high-powered mathematics needed to mint new Bitcoins.
It also rode a brief flurry of excitement around the “metaverse”,the virtual reality championed by Mark Zuckerberg.
However,the AI boom has eclipsed all that.
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Large language models such as ChatGPT and Google Bard require thousands of GPUs,both for their initial “training” and for the subsequent interactions known as inferences.
Almost every company and government is falling over themselves to invest in AI.
Amazon,Microsoft and Google,which operate the giant cloud computing data centres on which AI models generally run,are placing orders worth billions of dollars with Nvidia.
To a degree,Huang is fortunate his video game chips are so well suited to AI,but his allies reject suggestions he simply stumbled upon a pot of gold.
“He was one of the early people to think about it (AI) and study it,” says a former Nvidia executive.
“Jensen had big ears,he was listening to what was happening,he was experimenting and investing in how they could tweak these GPUs to be better at this stuff.
“He took a decision to bet significantly on AI in around 2018.”
Today,the company has competition from chip making giants AMD and Intel but enjoys a huge head start. So much so that Nvidia is now practically synonymous with AI itself.
The company’s results on Wednesday were seen as definitive because they suggested its leap in sales was not just a one-off but part of a sustained surge in investment.
Huang said that there was now a “tipping point” at which companies were diverting more of their investment into AI technology. “A new computing era has begun,” he said. “Our demand is tremendous”.
Still,not everyone is buying what Huang is selling. There are concerns that the public’s interest in ChatGPT is beginning to wane. Analysis of web traffic data shows visitors to OpenAI’s ChatGPT site fell by 10 per cent in June.
While the ChatGPT boom has relied on companies buying up swathes of Nvidia chips,companies such as Meta are now championing AI algorithms that need less computing power.
Meanwhile,some investors have decided that Nvidia’s skyrocketing share price makes it unpalatable.
‘Nvidia’s hardware has become indispensable to the AI-driven economy.’
Jacob Bourne,an analyst at Insider Intelligence
One investment house,AXS Investments,has even launched a fund dedicated to taking short positions against Nvidia - betting its stock will fall. Investors have so far put $US100m into the fund.
High demand for the company’s processors in China could also come unstuck due to US sanctions. The White House has already blocked the sale of some of its most powerful AI chips to Beijing and could go further.
Greg Bassuk,chief executive of AXS Investments,says Nvidia’s valuation is “suspect for some investors concerned about geopolitical impacts on the company’s growth prospects”.
He adds investors are now looking at whether the company’s “runaway growth in AI can persist at this pace”.
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However,so far this year short-sellers are nursing heavy losses by betting Nvidia’s share price will fall and are down over $US11 billion,according to analysts S3 Partners.
“Nvidia’s hardware has become indispensable to the AI-driven economy,” said Jacob Bourne,an analyst at Insider Intelligence. “Its results show how crucial the tech giant has been to the current economic growth narrative resting on the outlook that AI will elevate productivity and unlock trillions in economic value.”
If Nvidia can secure a fraction of those trillions,it might be unstoppable.
Telegraph,London