NVIDIA has been very “lucky” cultivating a few tulips 1) gaming, 2) gaming cloud, 3) Crypto, and now 4) AI. What’s its secret sauce? How close is NVIDIA to the plateau of this round AI “mania” to repeat another free-fall Cisco 2000 soon?
An Old Ghost in a New Shell
“Nvidia lives at the intersection of computer graphics, simulations and artificial intelligence. This is our soul.” stated NVIDIA CEO Jensen Huang at the COMPUTEX 2024 Keynote: The Era of AI. Whether AI will be NVIDIA’s final “tulip” remains uncertain, but as long as this enduring spirit persists, NVIDIA’s best days are likely still ahead.
A Soul: The Secret Sauce
“Greatness is not intelligence as you know. Greatness comes from character. And character isn’t formed out of smart people. It’s formed out of people who suffered… I wish you ample doses of pain and suffering.” — NVIDIA CEO, Jensen Huang at 2024 Stanford Economic Summit
Founders and professional CEOs are fundamentally different. “Good” CEOs deliver what the board asks for, while successful founders are:
- Guided by problems they deeply care about and understand.
- Building on unique insights to create much better solutions.
- Grounded by market feedback, iterating rapidly.
For startups, the only chance is to bet on an upcoming sea change — too small, uncertain, or early for big corporations to invest in. This chance might lie in tech, the market, policy, or a combination. Without a soul, no one can endure the pain and suffering long enough to succeed. This is a very different path and skillset to doing “business as usual.”
NVIDIA’s Trillion-Dollar Problem
NVIDIA has experienced 4 hyper-growth quarters by “selling shovels” in the AI gold rush. The next question is whether these buyers can dig out enough “gold” to continue purchasing bigger and better shovels. NVIDIA’s 10-Q filing in May 2024 stated that its top 2 customers represented 13% and 11% of its Q1 total revenue, $26B. NVIDIA is now a 75% ($19.4B) of data center compute company, with strong growth driven by large cloud providers deploying and scaling NVIDIA AI infrastructure, contributing to mid-40% of NVIDIA’s data center revenue.
However, as Chamath Palihapitiya pointed out on this week’s All-In Podcast, you can’t keep spending this kind of money without foreseeable incremental revenue potential. While the music won’t stop anytime soon, 400+% year-over-year quarterly revenue growth will no longer be feasible due to the base is already very high. So, what can a great founder do?
Raising the Ceiling
Even without strong indications that the scaling law will plateau soon, NVIDIA is still striving to grow the pie. Hence, Jensen continues to promote the idea of “the more you buy, the more you save.” To push boundaries further, NVIDIA will keep investing in its ecosystem because “the more AI applications developed and used, the more NVIDIA sells.” Several driving forces are already raising its ceiling:
- Multimodality, especially video, is driving the need of much bigger model.
- Simulation removes the physical reality and time limitations to generate data.
- Sensing the physical world and mass interactions will continue adding new data at scale.
