One meta-lesson is probably that sustained effort by the same people or same culture matters
i.e. maybe you need “two hits” to become this big, separated by ~2 decades
For nvidia, it was graphics and then programmable GPUs (CUDA)
For Apple, it was GUI desktops and music players/phones
Google is up there, but I’d argue it’s closer to “one hit”, and limited by the founders stepping back and turning the company into an investment conglomerate, rather than being mission-based
When the founders leave, efficiency and creativity seem to be slowed by competing factions of upper management, often working at cross purposes
I’d say that in the best cases, institutional knowledge can build over 2 decades, but it’s also very possible to lose it
To think the entire company could have failed multiple times in the 90s if not for Sega's CEO bailing Nvidia out after Sega fucked up the Dreamcast contract.
And even if Nvidia had won that contract, the Dreamcast ultimately failed. Nvidia was close to destruction multiple times in its early years.
Time for some grossly oversimplified back-of-the-proverbial-envelope value crunching! I’ll assume the average GPU price, for the sake of argument, is $1000. Let’s also assume their per-unit profit margin is roughly 30% (I found conflicting numbers for this on a casual search, esp. between figures that measure quarterly and annual income, I suppose it isn’t a surprise that their accountants frequently pull rabbits from hats).
Nvidia would need to move on the order of 4,000,000,000 units to hit $4T in revenue, more than triple that to realize $4T in profits. Even if the average per-unit costs are 2-3x my estimated $1k, as near as I’ve been able to tell they “only” move a few million units each year for a given sku.
I am struggling to work out how these markets get so inflated, such that it pins a company’s worth to some astronomical figure (some 50x total equity, in this case) that seems wholly untethered to any material potential?
My intuition is that the absence of the rapid, generationally transformative, advances in tech and industry that were largely seen in the latter half of the 20th-century (quickly followed with smartphones and social networking), stock market investors seem content to force similar patterns onto any marginally plausible narrative that can provide the same aesthetics of growth, even if the most basic arithmetic thoroughly perforates it.
That said, I nearly went bankrupt buying a used car recently, so this is a whole lot of unqualified conjecture on my part (but not for nothing, my admittedly limited personal wealth isn’t heavily dependent on such bets).
Nvidias business is about data center now. The data center gpu’s sell for 50k+ each and have unit margins over 70%. They’re making truly fuckloads of money off the AI boom.
I understand Nvidia is in a very dominant position. But $4T market cap still seems absolutely insane to me. I've only read about the Cisco boom and bust during the Internet era, and this feels eerily similar (people who actually experienced it might feel differently though).
What could actually drag Nvidia down and make them spend decades in the dark like Cisco still does? So far the two things I've come up with are: (a) general disillusionment in AI and companies not being able to monetize enough to justify spending on GPUs. (b) Big companies designing their own chips in-house lowering demand for Nvidia GPUs.
I don't think Nvidia can counter (a), but can they overcome (b) by also offering custom chip design services instead of insisting on selling a proprietary AI stack?
My personal pet peeve is comparisons like this, which aren’t inflation-adjusted. Is this a higher real valuation than the any other company in existence so far? From the information provided, it is unclear.
I don't fundamentally get it. How can a fragile company which doesn't even make their own chips be the most valuable company in the world. Why is it not some oil or shipping company? Something more "fundamental" in sense. Can someone explain how can Nvidia make so much money selling inference to big silicon valley companies?
This should be compared though to the general trend in current US stocks valuations, that are on par with Tulip Mania and Dot-com bubble.
Some examples:
- Palantir - valued at 337B USD (more than Meta less than 3 years ago !), with a revenue of 2B and net incomre 500M
- Gamestop - valued at 10B USD, with a quickly declining revenue of 4B and net income 100M (they lost money most of the time in the past 10 years)
- Coreweave - valued at 74B USD, on 1B revenue (growing quickly), 300m net loss, and very discutable accounting
- Tesla - valued at 1000B USD, on 100B revenue (which is now collapsing), 7B net income which will most probably turn into a less starting this quarter (no more ZEV credits) or next quarter (no more 7500$ subsides)
- xAI - valued at what, 100B USD ? On probably 0 revenue and huge losses.
Same goes for OpenAI, SpaceX etc, and I'm not even starting to talk about crypto (yeah, Dogecoin has a 'market cap' of 27B USD...).
We are living almost unprecedented times in terms of US stock valuations.
The unspoken, rarely acknowledged element of this story and other valuation stories is the devaluation of the US Dollar. That certainly contributes to the trend of record valuation after record valuation.
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[ 3.8 ms ] story [ 42.4 ms ] threadi.e. maybe you need “two hits” to become this big, separated by ~2 decades
For nvidia, it was graphics and then programmable GPUs (CUDA)
For Apple, it was GUI desktops and music players/phones
Google is up there, but I’d argue it’s closer to “one hit”, and limited by the founders stepping back and turning the company into an investment conglomerate, rather than being mission-based
When the founders leave, efficiency and creativity seem to be slowed by competing factions of upper management, often working at cross purposes
I’d say that in the best cases, institutional knowledge can build over 2 decades, but it’s also very possible to lose it
So that is helping Nvidia reach $4T, and all the other tech companies
They also probably have good ways of offsetting the weakness of the dollar, whereas regular citizens and investors don't
And even if Nvidia had won that contract, the Dreamcast ultimately failed. Nvidia was close to destruction multiple times in its early years.
Nvidia would need to move on the order of 4,000,000,000 units to hit $4T in revenue, more than triple that to realize $4T in profits. Even if the average per-unit costs are 2-3x my estimated $1k, as near as I’ve been able to tell they “only” move a few million units each year for a given sku.
I am struggling to work out how these markets get so inflated, such that it pins a company’s worth to some astronomical figure (some 50x total equity, in this case) that seems wholly untethered to any material potential?
My intuition is that the absence of the rapid, generationally transformative, advances in tech and industry that were largely seen in the latter half of the 20th-century (quickly followed with smartphones and social networking), stock market investors seem content to force similar patterns onto any marginally plausible narrative that can provide the same aesthetics of growth, even if the most basic arithmetic thoroughly perforates it.
That said, I nearly went bankrupt buying a used car recently, so this is a whole lot of unqualified conjecture on my part (but not for nothing, my admittedly limited personal wealth isn’t heavily dependent on such bets).
That said, I would be wary about buying shares of any company tied to AI right now.
Very few people scrambling to throw money into 'AI stocks' have any idea about technology. When the music stops it's going to be ugly.
What could actually drag Nvidia down and make them spend decades in the dark like Cisco still does? So far the two things I've come up with are: (a) general disillusionment in AI and companies not being able to monetize enough to justify spending on GPUs. (b) Big companies designing their own chips in-house lowering demand for Nvidia GPUs.
I don't think Nvidia can counter (a), but can they overcome (b) by also offering custom chip design services instead of insisting on selling a proprietary AI stack?
If so, the total addressable market of Nvidia might be pretty big.
Let's take the human body as a point of reference. The weight of the human brain makes up about 2% of the human body.
Earth weighs in at about 10^25 kg. 2% of that is about 10^22 kg.
All computer hardware on planet Earth weighs what? Maybe a billion computers times 10 kg? That would be 10^10 kg.
So we still would have to up that by a factor of 10^12.
Still 99.99999999% of the way to go.
This is a technology that will reach 90% usage for almost everything people do, so there is still so much more growth to go.
Edit: scrolling through the entries in the Wikipedia page here (https://en.wikipedia.org/wiki/List_of_public_corporations_by...), it seems likely that this is the highest valuation in real terms (ie, adjusted for inflation)
Some examples:
- Palantir - valued at 337B USD (more than Meta less than 3 years ago !), with a revenue of 2B and net incomre 500M
- Gamestop - valued at 10B USD, with a quickly declining revenue of 4B and net income 100M (they lost money most of the time in the past 10 years)
- Coreweave - valued at 74B USD, on 1B revenue (growing quickly), 300m net loss, and very discutable accounting
- Tesla - valued at 1000B USD, on 100B revenue (which is now collapsing), 7B net income which will most probably turn into a less starting this quarter (no more ZEV credits) or next quarter (no more 7500$ subsides)
- xAI - valued at what, 100B USD ? On probably 0 revenue and huge losses.
Same goes for OpenAI, SpaceX etc, and I'm not even starting to talk about crypto (yeah, Dogecoin has a 'market cap' of 27B USD...).
We are living almost unprecedented times in terms of US stock valuations.