The Enterprise AI Show #1056 - Nvidia's Pivot from Chipmaker to Financier
Aaron: And we are back, and We actually have everyone. We've got Brian, we've got Brandon, and we've got Aaron this week. And we actually wanna do another quick talking or a quick topic, and actually this one kinda came out in the news this week, and I thought was super interesting and Brian and Brandon and I were ki- kinda kicking this around.
But we wanna talk a little bit about I guess you could say GPUs as an asset class, y- what's going on with Nvidia, and there's all this news about, going to kinda being in a financier, if you will, going forward. And so we wanted to really k- break that down a little bit. What does that mean for enterprise AI?
What does that mean also just at a, technology level as well as a business level? And so with that introduction out of the way, I'm actually gonna kick it over to Brian to kinda start this off here. Brian, you had k- some kinda interesting things and some thoughts on this. So what's your initial thoughts when you read all of this about this?
And by the way too, the, it's the Nvidia [00:01:00] $105 billion backing of OpenAI's Ohio data center is what we're talking about. Link will be- Yeah ... in the show notes. Go ahead, man.
Brian: I think the, the basics of this is N- Nvidia, Nvidia has one... And we've talked about this a million times, right?
They have one sort of focus and purpose in life. Forget about all of their five-tier stuff and whatever it is. If we do not have the biggest share price in the world which will drive people buying our chips for forever what's the purpose of what we're doing?
And what they're kinda realizing is at some point people have burned through their VC money, they've burned through their free cash flow money. There there's only so much debt that they can take on for these companies, especially the startup ones, and so they're looking f- they are the OpenAIs, the Anthropics of the world, the Neoclasts of the world are like, "Hey, we would love to keep buying your chips because people seem to enjoy, using AI for whatever purpose they do.
We just can't afford it anymore." And so Nvidia goes, "Okay let's get creative here." And this is where it gets really interesting because two things have happened. One is [00:02:00] Nvidia has gone from the... I shouldn't even say Nvidia. Jensen Huang has gone from this idea that if you are not buying the latest and greatest chips, if you are not within one day of buying the next, Grace Hopper, Blackwell, whatever's coming next, if you're not buying that, you are close to going out of business.
You are close to not having the biggest model on the biggest chips on the baddest data center in the world. This is what we heard from him for t- two and a half years, right? If you are a day behind, your business is completely screwed, right? And so the, the implication of that was these chips only have a certain amount of useful life cycle.
Even though they might continue to run for a long period of time, they only have a realistic useful life cy- cycle because the people that buy the next generation, if they're a day ahead of you with a slightly better model ahead of you, you're completely out of, you're, you're useless, right?
And so we heard this drumbeat for two and a half, three years or whatever it was, and now Jensen has flipped it over because the people that were buying those things are saying I don't have enough money to do that anymore. I [00:03:00] don't-- I can't figure this out." And so what Jen- what Jensen has done is he's gone, "I'm going to switch from being the Pied Piper of technology to being the Pied Piper of financing."
And he's convinced a whole bunch of financing companies, private equity banks, whoever they might be, that GPUs don't really have this super short life cycle of which they are going to be incredibly valuable. They have a almost infinite life cycle, 10 plus years of how long they can continue to make money for me.
And if they have a very long life cycle of how long they'll make money for you, then we no longer should really think of them as a technology like leading edge thing that, it's all about innovation. This should be about something that is long-running and stable like a mortgage or something that generates cash flow for long periods of time, like a bond or something.
And therefore, the risk of taking on the technology should no longer be something that NVIDIA is burdened with or their customers are burdened with. We should push this back onto these financial organizations, and the [00:04:00] financial organizations can then treat GPUs as a commodity, like I said, like a bond or an annuity that will forever throw off cash flow, and they can go ahead and do all of their financing magic.
And Jensen has essentially, he's done a, a 180 from you have to be, one day ahead or you're useless to, 10, 12 year horizons for for AI and GPUs is perfectly fine as long as it creates a mechanism in which folks can keep buying my GPUs regardless of whatever technology story I have.
So it's been interesting to watch him do that. I guess it's a survival technique, but it is an interesting shift from, AI is at the center of innovation, and if you're not at the leading edge of it you're essentially dead, to folks, this is just stable stuff. It-- this is just annuities-
and pension funds, and you folks should be buying all this stuff up. It is exactly the same stuff that we heard in "The Big Short" in terms of let's take a bunch of stuff that may be volatile, make it seem really stable, and then let's package it up as a financial instrument. [00:05:00] It's it's a very interesting kind of flip that he's made over the last, six months for what's going on.
Aaron: Yeah. Brandon, what's your thoughts? I got some thoughts, but go ahead. You next.
Brandon: Yeah. I think I think Brian's made the case there pretty well. I think I kinda look at it maybe a little bit different. It's like a, it's a point in time thing. The one thing I think is true right now, most of the companies out there can't get enough GPUs, right?
That's what's made, if you will, the older GPUs, given them the longer lifestyle life cycle that Brian was alluding to. Maybe it's gone from three to four years to 10 years, which makes sense. I get that. And I think he's also in a place where like he's already sold everything. He's sold everything he can sell for the next probably two years.
So I think that has maybe potentially given us a weird cycle, whereas at this very moment, there probably, needs to be a way that people can like, buy more of this, use more of this, es- especially as if, as the demand increases. As long as you believe that Anthropic and OpenAI and others are continuing this, have this demand crunch, there's gonna be a need to buy more, right?
So I I get that, and that part makes [00:06:00] sense to me. I think where Brian's getting at though is, and I think Ben Thompson's made this point as well, it's like smart people and, markets, if you will, market behavior is such that like this, this hole will get fill-filled, right? It may take us three years, but at some point everyone's gonna show up with what Brian was talking about, with like the latest GPU, right?
And when all the latest GPUs are available and they run at less power, they give you better performance, then you're at a potential, I think to exactly what Brian is saying, then you're gonna be at a point where it's like all this debt on this old, these old things that are worthless, right? It's almost like a car that's broken, is potentially gonna be a problem.
So I don't know. This is one of these things, it's like ultimately I guess the market and Jensen's like you're trying to thread this needle of can we use this financing for the next three to five years to manage this demand and then, if you will, ma- not magically, and then transition perfectly to the new GPUs that maybe even NVIDIA doesn't make, maybe Google's making them or Amazon at that point.
And the financing isn't as, as needed. Does it all like [00:07:00] go well? History would show it doesn't normally go well, so I think there's probably plenty of warning signs out there. So I don't know if that's what I think is going on. What do you think, Aaron?
Aaron: So I think two big things. Number one, okay, GPUs as a product The model had to change because, okay you go back to Nvidia origins when they were making 3D graphics cards for gamers, right?
Basically the top end was something you could fit in a PC. The life cycle was a couple years. You bought another one, you moved on. We're to the point now where I like the analogy of thinking like GPUs like airplanes now. They're so expensive that you have to keep them running all the time.
They have to be depreciated off over a number of years. And you can't think of, especially the, on the high end, you can't think of it the way we traditionally thought of "Hey, it's just a chip," or it's just something else. It is something that is a major asset. It's probably one of the most expensive assets.
I like the, the comparable to like it's an airline in the airline industry. [00:08:00] You gotta keep those planes, flying, and you gotta keep those planes full. And if the product model doesn't fit, you need to come up with a new product model, and the biggest thing we have right now is Yeah. Okay, great.
There's the airplanes, but th- there's where, this is where the analogy breaks down. The data centers that, you have to build all new data centers at this point, because the existing data centers, you can't get enough power, you can't get enough, liquid cooling into them, all these other things.
So if you've gotta build an entire new data center because the plane's so big and so expensive, you've just taken something super big and expensive and made it even bigger and more expensive because you gotta build the data center to go around it now. So this almost seems like a natural progression, and it also is the b- single biggest limiting factor in our industry.
Brian: Or profits.
Aaron: Exactly. Exactly. And so-
Brian: This is, th- this is the difference between this and the plane analogy. Like- Yes ... the plane analogy you know while we've seen we've seen airlines go bankrupt because, they do [00:09:00] dumb things or whatever they do- Yes
or they don't hedge, oil prices, changing or whatever. They do find ways to become a profitable business. It's probably not the best analogy because airlines tend to run, they almost look like a grocery store at the level of profits they make. But- Yeah
Yeah I think what we're seeing here and what we've done to ourselves over the last, I don't know, several years, is we've continued to base everything on when more chips show up, things will get better. When more data centers show up, things will get better."
And people just ignore the, but will it be profitable, right? We look at, oh, okay, Anthropic has this much revenue and, they're, now they're starting to get into sort of the bullshit phase of I'm not really gonna tell you what my revenues are because maybe I'm gonna IPO, and maybe I'll tell you, maybe I won't."
But none of these guys are profitable, and we've gone from okay, this is being funded for example, this is being funded, oh, this is funded out of the, the hyperscalers. They're just their cash flow. This is not a big deal. They're just funding it out of their own money.
They're not even going to VCs or the debt market. And then it became like, "Oh, we're spent all of our free cash flow." And now it's becoming, "Oh, we're taking on debt [00:10:00] ourselves." It's, n- nowhere in any of these equations is anybody highlighting profitability, and we're now, we're now touching, like, trillions of dollars of investment.
And again, you go back to the companies that everybody kind of models themselves after, whether it was Microsoft with software or Google with ads or Apple with smartphones and stuff, like they became profitable in a very reasonable amount of time before any of this stuff happened. And, so we're very much seeing the shenanigans that people do when they can't find profitability and they're just gonna keep, throwing money at this thing until...
I think what they're ultimately doing is none of them are doing these things Because it's a smart thing to do as an individual basis. I think they're all doing it based on who's gonna be the last one around when a whole bunch of these start collapsing, and then I can, start to buy the next sort of tranche of this stuff on the cheap.
Because right now th- there is tons of money going into this thing. Nobody's profitable on it and they keep throwing it at it in the same [00:11:00] way. And we haven't seen anything break yet. And I think at the point when something breaks then we'll figure out if any of these approaches are any good.
But right now, all these things are looking very Zitroni in that if you look at them rationally in sort of a straight line, you're like, "That doesn't make sense. You're throwing money at it. You're not making it-- You're not becoming profitable." And then they hide it behind this idea of these are smart people.
These are bankers, these are computers. These are smart people. They would make smart, rational decisions. And you're like, "No, it doesn't." That, that's not how it works in any of these bubbles. There is no rationality that happens at some point. They're chasing, "I'm gonna be the only one left at the end of it," and we just haven't seen anybody crash yet.
And I think, it's just a matter of time before some big piece of this falls out, whether it's debt that doesn't come due or, one of these frontier companies goes belly up or something like that. Then we figure out how bad of these decisions they are or how smart they were to get ahead of this u- new unique financing.
But I think until that happens, either somebody shows a profit or somebody crashes out, we're just chasing [00:12:00] funny numbers.
Brandon: Yeah, no, I'm just reminded as Brian was talking there, it's we can't go a show without a sports metaphor. They always say winning is a great cure for culture.
It's when everyone's winning, the culture of your team is it's fine. Oh, they don't get along, or they're just playing hard, right? And things like that. And when when you start losing, though, that's when you start to see like real conflict. And I think that's where we are today.
It's like, as long as demand is this high, right? As long as it, and it continues to grow like this, it's gonna keep going, right? No one's gonna stop, right? 'Cause it just like the, the machine needs to be fed. If you're really on the bear case, it's if you feel like at some point the people that are, buying Anthropic and OpenAI and paying the big subscriptions like the nine-figure subscriptions, if they suddenly decide this is not worth it anymore, right?
Then suddenly another famous quote "Tides come in and tides come out." I think it's like a Buffett quote. And it's like when the co- tides go out, like everybody you see who's naked, right? You're gonna know like who actually has money. So I don't know. I get it though.
I am more sympathetic maybe to if I was running these companies and then you feel like Jensen Huang where it's if... [00:13:00] 'Cause I think he's all in mentally. He's like, "This is life." He doesn't have a
Brian: choice.
Brandon: I think it is true, but I think he's even, I think it isn't even just a pr- I think for him it's more like, it's not even so much he's even intellectually questioning it.
He's just bought everything and he's just "This is gonna change the world. I've gotta do it." And when you're at that point and it's just we're all going for the ride, and I guess all of our 401s are going for the ride as well.
Aaron: And it actually goes back to Brian, the kind of the origins of this podcast.
We, one, one of the unofficial mottos has always been following the money, right? And trying to figure out how and where things are going to get profitable, although going back all the technology waves we've covered. And I think one of the biggest things here is, and we've said it once or twice now, the maths don't math, and they're still not mathing.
And-
It's, it's- ... we're still trying to figure that out. Go ahead.
Brian: Yeah. This is this is the stuff that's interesting. So when we all watched, "The, The Big Short" or "Margin Call" or any of those things, and you look back on it afterwards, you were like: Oh, okay, this is... That's how they built stuff.
That's how they leveraged stuff. Okay, I [00:14:00] see why that sort of happened, and so on and so forth. But like nobody was really talking about it, and maybe it was 'cause again, it was the, the earliest days of the internet and social media, so people didn't cover that beat the way they do today.
But you look at it now and you just walk... if we're following the money, it was like it started with VC money, which is, essentially free money because if you lose it all, it doesn't cost you anything. Then it became, "I'm gonna u- I'm gonna spend my free cash flow money."
And then it became, "I'm going to do a bunch of debt stuff, but I'm gonna do it off the book on these, these sort of," what do they call them? S- SRVs, special SPVs special, you know, the... Basically the, "I created a shell company to put my debt over there," and now they're like, "Okay, I've loaded that up enough, and now I'm doing my own debt on this stuff."
Like we've been through all the money. Like we've been through at least four or five tranches of the money. But y- and again we're not profitable necessarily on this stuff, so it's gonna be, it's gonna be very interesting to see where this stuff goes. It, it-- I see why they're doing it.
And I understand Brandon's ar- Brandon's argument is essentially like Jensen's all in this because he's a true believer." He's also [00:15:00] a true believer because, if he's not a true believer, y- he's going... Like they're in trouble. He has to be. They're in trouble.
Yeah, he has to be a true believer. Yeah, he doesn't have a choice, right? Yeah. Like he doesn't have an ability to walk away from the table because he is not only the player at the table with the biggest stack, he's also the table, right? He's become both the casino and the biggest player, and so he can't walk away from this thing 'cause he's gotta feed, he's gotta feed himself as well as feeding the industry on this thing.
So and it might work out. This might be... he's playing the ultimate game of, like we talked about during COVID, like Zoom was worth i- you know, infinitely more than they should've been, and they spent none of their chips. He's at least spending all of his chips because he's "If this doesn't work, I have no chips."
So you know he's playing the only game he can play. It's just, it's telling that he's now had to get to this point that like literally nobody can buy his chips. They can't afford to buy his chips anymore. They don't have any money to buy his chips, and so he's "Okay, I'm gonna, I'm gonna create a different way for you guys to have the thing that we'll call money that you can therefore buy my chips, which I'm buying myself."
It's an [00:16:00] interesting follow the money but it does it does look and smell like other things we've seen where we go, "Oh this didn't end well." Agreed. I, ag- again, it's like you can do whatever analysis you want of it, but like it looks very much like other stuff.
And I-- what's really interesting is he's, he-- people like to make the analogy where they're like at least with the internet you got fiber." Like at the end of the day, Google got to buy up all the old fiber that nobody used. And people were like when they laid the railroads, yes, the railroads all went bankrupt, but the tracks were laid."
And he's now trying to make the argument, 'cause people have said forever that doesn't work for GPUs 'cause they've only got a three, four-year life cycle." He's now trying to create the perception that not only can you trade on these things, but if this stuff goes belly up for some number of these things, these are like the fiber, right?
Like they're gonna have a very long life cycle. And maybe they really will, but it's a very different, perspective than what he had two years ago. And I, what'll be really interesting, maybe this is entirely different, is if that's the world that we live in which it's like, hey, [00:17:00] we shouldn't be chasing the latest and greatest because the, the financial model for GPUs is this thing should last 10, 12, 15 years in terms of like getting profits out of them, that sort of has a ripple effects to like why do we keep building frontier models, right?
Because the frontier models are chasing biggest. And Jensen is essentially saying, "That's not gonna be profitable for you guys. I'm showing you what profit-- where, how you're gonna get to profitability, and I don't know what business model you're in anymore." So it's an interesting sort of second ripple that goes along with him trying to figure out how to get himself paid.
He's essentially told the frontier folks like, "Your business model doesn't work anymore." It's not worth it to keep training the biggest models all the time.
Aaron: I'm kinda wondering too, like the, the-- I'm thinking of like the what's a, what's leftover analogy, like the train tracks or the fiber.
Is the idea behind it too okay, we're gonna build all these data centers and the data centers is what's left behind because again, there's y- [00:18:00] you're gonna need somewhere to host all of this stuff. And I've never seen, the power needs go down. And so there is almost like this data center build-out that's gonna have to happen, and even if stuff does crash there's a data center build-out that maybe is the artifact that stays behind.
Brandon: I think what people say is we'll have the power will be left. Yeah, the power. The power generation is always used. So that could be it. But I guess I'll just take I'll take the, the bull case here. I'll just be maybe slightly more optimistic- Sure ... and say, if you were to be super optimistic would be something along the lines of we just need to fund these models, the frontier models, so they get to some point where we actually start to see these incredible societal benefits that everyone keeps talking about, right?
Cure for cancer, the list of things go on and on, right? That could be done. So if you wanted to say like a bet, maybe that's a different bet, but a similar bet that, Jen's making is like, "Listen, we-- I'm just, I'm trying to get us to the point where we're gonna have the great models that can do all of the things like, and provide, all the things that we talk about, right?
That [00:19:00] the potential of this. And if we did reach that point, that the businesses and things that we create will create so much value that it will, pay for all this debt 10 times over, right?" I think there is a, and I think that's that's a very optimistic view of it. But I think, you could, you can make that case, right?
You can say it's like we're close, like we know. And this is the hard thing about all of this because we're living through it. Like right now it's I think it's incredible. Like it's amazing. It can write code, it can do all these things, and I use it every day, and I'm totally blown away with it. But at the same time, I al- always say if you were like in charge of the AI CMO, like we need a big win.
We need a win that all of society points to and says, "This is incredible," right? That they're just like the thing that we wanted to happen finally happened, and everybody in society can easily see the benefits of it. Because today I think people just see like data center and they're like, "That's bad. I don't want a data center in my neighborhood.
I don't want this in there." Sure. And so that's like the underlying bet, and I guess, you could be, that's maybe the Dario- they're taking- ... the singularity guys that are out there. They're making that case.
Brian: They're trying to take a page out of the Elon playbook, which is-
[00:20:00] I'm gonna, I'm gonna set a goal that's so big that you can't really fathom it, but I'm gonna tell you it's right around the corner. And then once the corner, we start getting towards the corner, they go it is, but there's, there's a couple more corners to get to but we've made a lot of progress."
Brandon: Absolutely.
Brian: So we're, we're close to flying cars and we're close to, data centers on Mars and, data centers floating. Like that, that, that's the other game that they're playing is they're like we have to be right on the edge of also being a meme stock because that's the only way that- Yeah
that you can value the expectations as something that you just can't measure. Which is, it's fine. That, that game- No, I
Brandon: get it.
Brian: I think that's- that game has proven itself to be wildly successful, at least for one person and their-
Brandon: Yeah ... many sort of- It can, I think you're right.
I think sometimes it works out, and people sometimes say, valuation is what? Today's earnings plus a story. So if you can tell a great story and people believe you for a long period of time, like Bitcoin's another one. It's just like it just sits out there forever and forever, and people like that story so we'll see.
I don't know. Are we living through, Is it just a story, or are we actually on the verge of some breakthrough? I don't know. L- listen to the "Enterprise AI Show." We'll just tell you. We'll tell you when it's all gonna happen one way or the [00:21:00] other.
Brian: That's right. All right, man, we talked about a lot of stuff.
You wanna wrap it up?
Aaron: Yeah, absolutely. So everyone out there, thank you very much for listening. We certainly appreciate it. And also, by the way, wherever you get your podcasts if you have the ability to leave a review, we'd certainly would love a review. And also, as always reach out to us if you have any ideas for guests or any feedback as well.
And behalf of Brandon, Brian, and myself, thank you everyone for listening, and we will talk to everyone next week
