Last week, mankind went back to the moon courtesy of Nvidia earnings. In a funny coincidence, the Odysseus moon lander simultaneously became the first U.S. spacecraft to reach the moon since 1972 — and the first one ever launched by a private company in collaboration with NASA. Unfortunately, some corners were cut in the testing process, leading to a hard landing that caused the craft to tip over.
Disappointing landing aside, getting a spacecraft back to the moon is a heroic thing. What Nvidia has done is also heroic. The question, though, is whether Nvidia's off-the-charts level of chip demand is sustainable for the long term. Wall Street is pricing the shares as if it is, which would require NVDA to haul in more profits than Apple (i.e., above $100 billion versus the current annual run rate of $30 billion).
In our view the demand for Nvidia chips is not sustainable because the primary demand sources appear to be big tech itself (i.e., Mark Zuckerberg's Meta Holdings hoarding $10 billion worth of chips) and Silicon Valley (hot new startups hoovering up A.I. chips and getting venture backing in the form of chip commitments).
Apart from that, the staggering success of a picks-and-shovels juggernaut in the A.I. gold rush is not the same as the prospectors themselves finding gold. That could still happen, but we would need to see evidence for it.
Alternative scenarios to the utopia priced in by Wall Street include the possibility of A.I. having a transformative impact on the economy but in a deflationary way — with efficiency gains passed down to consumers in the form of price competition — and the possibility of large-scale players like Microsoft and OpenAI booking disappointing profits over the medium to long term, or possibly even no profits at all due to the high costs and brutal competition inherent to being an A.I. competitor at scale. All told, this moon has a dark side.
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