If you want to build a multi-trillion dollar company - buy a leather jacket, go to Denny's and let it rip.
The rise of Nvidia is something to behold. As the 2nd most valuable company in the world, it is showing how big we are betting on A.i.
Yes, Nvidia was started in a Denny's. Three guys designing a graphics processor while ordering Moons over My Hammy. All three wearing leather jackets. (Ok. The leather jacket thing I made up, but it feels much cooler).
Bottom line, Jensen Huang is a rock star and seems to have no limit to what he can do and wants to do. Who would have guessed building GPUs to make video games look like reality for a bunch of teenagers eating Doritos and drinking Redbull in the basement would lead to a 3 Trillion dollar business. It just happens, that the same mathematical models GPUs use, so does A.I.
The millions of parents who hated on video games and yelled at their kids to stop playing games and get real jobs, are now potentially going to lose their jobs from the very same technology.
Irony is not lost on this one.
So let's figure out why Nvidia is supposedly worth 3T. (One could argue the minute your CEO is seen signing someone's shirt, that should count for 1 trillion toward the valuation immediately.)
Justifying Its Valuation Through Strategic Expansion
Nvidia has been making waves in the technology sector, bolstering its reputation as a leader in AI chips. The company has exhibited remarkable growth, reporting a revenue of $79.77 billion for the twelve months ending April 28, 2024, marking an impressive 208.27% year-over-year growth. In the quarter ending April 28, 2024, Nvidia's revenue surged to $26.04 billion, reflecting a staggering 262.12% increase from the previous year. Such numbers highlight Nvidia's dominance in the AI chip market and suggest that its current valuation can be not only justified but potentially surpassed through strategic expansion into new markets and services. One should note that a majority of this revenue is from a handful of companies we call M.O.A.T.M.A.N.A. (Microsoft, OpenAI, Apple, Tesla, Meta, Amazon and Alphabet.
Leveraging Leadership in AI Chips
Nvidia’s current stronghold in AI chips has positioned it as a key player in the rapidly growing AI market. With a two-year lead over its competitors, as noted by Anand Deshpande, Chairman and Managing Director of Persistent Systems, Nvidia has capitalized on its early investment in AI technology to gain a crucial edge. This leadership is reflected in Nvidia’s extraordinary growth figures and its pivotal role in advancing AI applications across various industries. The global AI market's insatiable demand for high-performance chips to power sophisticated AI models ensures that Nvidia's current trajectory in this sector will likely sustain its revenue growth and further cement its market position.
Eyeing the Mobile Chip Market
The global mobile chipset market is projected to reach $103.07 billion by 2033. For Nvidia, entering this market represents a significant opportunity to diversify its revenue streams and capitalize on the expanding mobile ecosystem. Nvidia's expertise in AI and high-performance computing could give it a unique advantage in designing mobile chips that outperform existing solutions, especially in AI-driven applications. By tapping into the burgeoning demand for advanced mobile processors, Nvidia can leverage its technological prowess to capture a substantial share of this market, contributing significantly to its overall revenue and enhancing its valuation. There is a strong argument that demand for localized AI on devices is the next big wave where a chip on the device (e.g. phone) is needed to run the SLM (Small Language Model).
Expanding into Automotive Chips
The automotive chip market, valued at $39.14 billion in 2022, is expected to reach $73.54 billion by 2028. Nvidia’s potential expansion into this sector aligns well with the increasing adoption of AI in automotive technologies, including autonomous driving and advanced driver-assistance systems (ADAS). Nvidia’s existing strengths in AI can be adapted to develop sophisticated automotive chips that meet the growing needs of car manufacturers for smarter, more efficient processing solutions. Successful penetration into this market could open up another lucrative revenue stream for Nvidia, reinforcing its growth prospects and justifying a higher valuation. Once again, this would be additive revenue on the edge of the network where there could be a growing demand for on-device A.I. that doesn't depend on an Internet connection (and also could be more secure as well).
Entering the Cloud Services Market
The Global GPU as a Service (GPUaaS) market is projected to grow from $6.60 billion in 2023 to $60.83 billion by 2031, with a compound annual growth rate (CAGR) of 32%. Nvidia’s potential entry into cloud services could be a game-changer. By offering GPUaaS, Nvidia can extend its reach into cloud computing, providing businesses with scalable, high-performance computing resources necessary for AI and data-intensive applications. This move would enable Nvidia to tap into the booming cloud services market, further diversifying its revenue base and adding a recurring revenue stream that could stabilize and amplify its financial performance. Of course this also means it will become a competitor to the other cloud companies who happen to be some of NVidia’s biggest customers.
Strategic Growth Through Market Diversification
Nvidia's expansion into mobile and automotive chips, coupled with its potential foray into cloud services, positions the company to leverage its core competencies across diverse high-growth markets. Each of these markets—mobile, automotive, and cloud—offers substantial revenue opportunities and aligns with Nvidia’s expertise in high-performance and AI-driven computing.
Nvidia’s financial results reflect a company well-poised to capitalize on its strategic initiatives. The fiscal year ending January 28, 2024, saw Nvidia achieve an annual revenue of $60.92 billion, growing by 125.85% year-over-year. This consistent upward trajectory, with substantial quarter-over-quarter growth, underscores the company’s ability to effectively capture market opportunities and respond to increasing demand for AI solutions. Nvidia’s robust revenue figures are not merely a testament to its current success but also provide the financial muscle required to invest in and penetrate new markets.
Nvidia’s potential entry into new markets should be viewed as a strategic extension of its existing capabilities. The company's deep expertise in AI chip technology can be synergistically applied to both the mobile and automotive sectors. For instance, Nvidia’s advances in AI algorithms and processing power can revolutionize mobile chip designs, making them more efficient and capable of supporting advanced AI functionalities directly on mobile devices. Similarly, Nvidia’s AI expertise can lead to the development of more sophisticated automotive chips, which are essential for the next generation of smart and autonomous vehicles.
This cross-application of technology not only reduces R&D costs but also accelerates market entry, allowing Nvidia to leverage its existing intellectual property and manufacturing processes to gain competitive advantages quickly.
Of course, taking all of this in consideration we could be in a trillion dollar bubble and the guy in the corner booth ordering extra sides of hash browns could just be a figment of our artificial imagination.
*not financial advice.