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).
wredcoll · 2m ago
It seems fairly obvious, to me, that the issue is that most people make money from the stock price changing rather than from any kind of intrinisic value of the underlying company.
In other words, why should it matter to me what the company's profit margin or asset base or what not is actually worth when I make money if the stock number goes up?
chubot · 1h ago
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
bayarearefugee · 49m ago
Another lesson is to try to be incredibly lucky.
I'm not suggesting this is all luck, Nvidia has executed very well and their early investments in programmable GPUs really paid off as a result, but a lot of their insane valuation now is due to crypto and then LLMs which are basically two back to back once in lifetime goldrushes where Nvidia happened to be the best positioned shovel seller.
You can run a company well to prepare to ride such a wave should it appear, but you've also got to be born with horseshoes up your ass for this to work out as well as it has for Nvidia
hn_throwaway_99 · 22m ago
The other thing I find interesting is that Jensen Huang has said that he wouldn't do it all over again. That is, knowing how hard it is now to build a startup, he wouldn't do it again.
I find this pretty crazy given that (at least for now) NVidia is the most successful startup of all time. Imagine the millions of other entrepreneurs, many of whom worked just as hard, who completely failed in the process.
LarsDu88 · 11m ago
I think Nvidia's market development efforts have meant more than its culture. Ever since Nvidia started moving towards general purpose compute with the 8800 GPU back in the mid 2000s, it's been actively growing markets - first in research (leading to AI advances), and now in autonomous driving, world simulation, biotechnology, and robotics.
The market for compute is endless, and Nvidia makes huge efforts to commoditize the software side of things so people can buy hardware.
dachworker · 47m ago
NVIDIA put a lot of effort into making their hardware and accompanying software useful and usable. CUDA by itself might have never got any attention if not for the effort that NVIDIA puts into helping their customers use their technology, effectively. And they are by no means perfect at it. Most of their products are a horrible mess and they often have 7 different ways to do the same thing. A lot of their libraries are closed source and you're forced to use an API that links to a black box. There's lots to complain about.
floxy · 53m ago
Amazon ($2.3T)? Microsoft ($3.7T)? Meta ($1.8T)?
nativeit · 4m ago
Crazy what a near total lack of anticompetitive regulatory enforcement can do for a monopoly’s value, amirite?
xrendan · 27m ago
Amazon - Ecommerce (1994), AWS (2006)
Microsoft - Programming Language (1975), Operating Systems (1981), Office Suite (1983)
Meta - Facebook (2004), Instagram (2010)
I would argue microsoft is unique because of how badly IBM screwed up.
0xcafefood · 24m ago
Microsoft also has Azure and its gaming division.
jahsome · 24m ago
Books and AWS
EEE and owning the soul of every customer
Facebook and cool zuck
LarsDu88 · 13m ago
To think the entire company could have failed multiple times in the 90s if not for Sega's CEO bailing Nvidia out after Sega fucked up the Dreamcast contract.
And even if Nvidia had won that contract, the Dreamcast ultimately failed. Nvidia was close to destruction multiple times in its early years.
thomassmith65 · 5m ago
Congratulations to Nvidia.
That said, I would be wary about buying shares of any company tied to AI right now.
Very few people scrambling to throw money into 'AI stocks' have any idea about technology. When the music stops it's going to be ugly.
TriangleEdge · 6m ago
The next question is: will I be alive to see the first quadrillion dollar company? Or maybe a 100$ banana?
kraemate · 44m ago
Wow, who knew making proprietary accelerators could be so profitable.
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).
In other words, why should it matter to me what the company's profit margin or asset base or what not is actually worth when I make money if the stock number goes up?
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
I'm not suggesting this is all luck, Nvidia has executed very well and their early investments in programmable GPUs really paid off as a result, but a lot of their insane valuation now is due to crypto and then LLMs which are basically two back to back once in lifetime goldrushes where Nvidia happened to be the best positioned shovel seller.
You can run a company well to prepare to ride such a wave should it appear, but you've also got to be born with horseshoes up your ass for this to work out as well as it has for Nvidia
I find this pretty crazy given that (at least for now) NVidia is the most successful startup of all time. Imagine the millions of other entrepreneurs, many of whom worked just as hard, who completely failed in the process.
The market for compute is endless, and Nvidia makes huge efforts to commoditize the software side of things so people can buy hardware.
Microsoft - Programming Language (1975), Operating Systems (1981), Office Suite (1983)
Meta - Facebook (2004), Instagram (2010)
I would argue microsoft is unique because of how badly IBM screwed up.
EEE and owning the soul of every customer
Facebook and cool zuck
And even if Nvidia had won that contract, the Dreamcast ultimately failed. Nvidia was close to destruction multiple times in its early years.
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.