this post was submitted on 28 Sep 2024
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Which tech titan does it take with it?
My money is on Microsoft as owners of OpenAI, but most have sunk more into it than they should.
I doubt anyone that big will fall, Microsoft have so many fingers in so many pies, they can afford to take a hit like this. Plus, with the Office suite of products, they're probably in the best place to make something back, even if they don't make all their money back.
Microsoft are bullet proof. Their share price will take a big hit, and an exec or two will take a golden parachute, but they'll bounce back very quickly. The bigger problem is that along the way they'll balance the capex with multiple rounds of cutbacks and layoffs in other departments, and that's before they're finally forced to layoff everyone actually connected to this AI nonsense (who isn't a senior manager or c-suite; they'll all be fine).
Nvidea. Their share price would be a fraction of what it is without AI. Just like the last two cryptocurrency bubbles, they went all in and then acted surprised when they popped.
At the same time, they've lost a lot of goodwill with gamers, formerly their core audience. With the AAA industry pulling back, games might not be pushing the limits of GPU tech anymore. Microsoft still has their old core products, but Nvidia may return to it to find a wasteland.
Nvidia isn't going to be holding any bag. They're selling through what they make, and LLMs are just one of many uses for the massively parallel math they're at the forefront of. At most they have to bring pricing down, but they don't own the fab, so if demand did drop (which isn't really all that likely), their costs will go down too. They have contracts in terms of volume and price, but they're not near long term enough to do them more than a blip, and all their investment in developing architecture/tooling has value well outside of LLM nonsense.
Their stock price will tank. They have a $3B market cap because they're selling shovels in a gold rush. Once the gold rush is over, that valuation will go back to where they were three years ago. Probably lower, because the stock market tends to overcorrect on these things.
Companies base their capital on their stock price, and a drop like that can kill companies. Doesn't mean for sure that Nvidia will die, but they could.
Their fundamentals are too strong. They have market dominance with extremely steady technological progress against really bad competition. LLMs aren't going to disappear when the shitty overpromising bubble pops. Generative AI isn't going anywhere. Any of the thousands of other uses for their raw power are still there. They'll just be at the ground floor of whatever the next math heavy hype cycle is, just like they were with crypto and LLMs, because cuda is the best way to get shit done, whether what you're doing is useful or trash.
Like he said though, being fabless means there's no assets to hold the bag on. It's the fabs that stop getting profitable orders that tank. Worst case is they do layoffs.
They'll just transition to the next fad that needs large amounts of parallel compute. It's what they've just done moving from cryptocurrency to machine learning.