[AnthonyMouse]

It has been clear for a while that one of two things is true.

1) AI stuff isn't really worth trillions, in which case Nvidia is overvalued.

2) AI stuff is really worth trillions, in which case there will be no moat, because you can cross any moat for that amount of money, e.g. you could recreate CUDA from scratch for far less than a trillion dollars and in fact Nvidia didn't spend anywhere near that much to create it to begin with. Someone else, or many someones, will spend the money to cross the moat and get their share.

So Nvidia is overvalued on the fundamentals. But is it overvalued on the hype cycle? Lots of people riding the bubble because number goes up until it doesn't, and you can lose money (opportunity cost) by selling too early just like you can lose money by selling too late.

Then events like this make some people skittish that they're going to sell too late, and number doesn't go up that day.

[d1sxeyes]

One thing you’re missing is that there’s nothing that says the value must correct. There are at least two very good reasons it might not: Nvidia now has huge amounts of money to invest in developing new technologies, exploring other ideas, and the other is that very little of the stock market is about the actual value of the company itself, but speculation. If people think it will go up, they buy it, reducing supply, and driving up the price. If people think it will go down, they sell it, increasing supply and driving down the price. It is a self-fulfilling prophecy on a large scale, and completely secondary to the actual business.

[AnthonyMouse]

> Nvidia now has huge amounts of money to invest in developing new technologies

This is not actually a reason for investors to invest in a company, because it's caused by investors investing in the company. If the market would invest in some other company instead then that company would have huge amounts of money to invest in developing new technologies. Meanwhile the ones that tend to succeed in that are more often new, nimble companies breaking into or creating a new market rather than large established ones with bureaucracy, internal politics and fear of cannibalizing existing sales.

Example: If there is a popular new application for consumer GPUs that requires a lot of VRAM, a competitor could make a lot of money by developing consumer GPUs with a lot of VRAM, but Nvidia would have to worry about that eroding sales of enterprise GPUs. Then investing in the competitor could have a better return, both because of potentially higher growth (people invest $5B in developing the GPU and then it becomes a $100B+ company, huge ROI; very little chance of Nvidia going from $3T to $60T), and because when it happens it comes at the expense of the incumbent, who loses not just the consumer GPU sales but the enterprise ones to the competitor selling for consumer prices. Which means the incumbent still has a very significant risk of losing value, but without as much potential upside.

People often try to make this argument by pointing to Microsoft or Apple, but those are major outliers who got there through anti-trust violations. Meanwhile Kodak, Xerox, Yahoo, AOL, Sears, IBM, GM, GE, etc.

> very little of the stock market is about the actual value of the company itself, but speculation

That's the hype cycle. We know which section of the graph we're on right now.

[marcosdumay]

Eventually people will sell their stock to invest in some business that is actually growing or giving proportional dividends.

Of course, that "eventually" there is holding a way too much load. And it's very likely this won't happen in a time the US government is printing lots of money and distributing it to rich investors. But that second one has to stop eventually too.

[d1sxeyes]

What if it just… doesn’t?

[marcosdumay]

It's a lot of people holding the stock, you are expecting everybody to just not do it.

Private companies are different, but on publicly traded ones it tends to happen.

(Oh, you may mean that printing money part. It's a lot of people holding that money, eventually somebody will want to buy something real with it and inflation explodes.)

[d1sxeyes]

Yeah the printing money bit. Generously one might even say that that’s the reason for printing more money: make sure that the value of peoples investments decays over time so there’s no need for the market to crash to “get the money back out”.

[matwood]

Related to your #2. I mentioned this elsewhere yesterday, but NVDA's margins (55% last quarter!) are a gift and a curse. They look great for the stock in the short term, but they also encourage its customers to aggressively go after them. Second, their best customers are huge tech companies who have the capital and expertise (or can buy it) to go after NVDA. DeepSeek just laid out a path to put NVDAs margins under pressure, hence the pullback.

[HDThoreaun]

Their data center margins are even dumber. 80-90% margins on a product just are not sustainable. No chance they keep this monopoly long term.

[awongh]

2) Seems the most plausible, but how to value the moat, or, how long / how many dollars will it cost to overcome the moat? The lead that CUDA currently has suggests that it's probably a lot of money, and it's not clear what the landscape will look like afterwards.

It seems likely that the technology / moat won't just melt away into nothing, it'll at least continue to be a major player 10 years from now. The question is if the market share will be 70%, 10% or 30% but still holding a lead over a market that becomes completely fractured....

[bo1024]

I think the analysis of (2) is too simplistic because it ignores network effects. A community of developers and users around a specific toolset (e.g. CUDA) is hard to just "buy". Imagine trying to build a better programming language than python -- you could do it for a trillion dollars, but good luck getting the world to use it. For a real example, see Meta and Threads, or any other Twitter competitor.

[AnthonyMouse]

You have a trillion dollars in incentive. You can use it for more than just creating the software, you can offer incentives to use it or directly contribute patches to the tools people are already using so they support your system. Moreover, third parties already have a large motivation to use any viable replacement because they'd avoid the premium Nvidia charges for hardware.

[kristiandupont]

You could apply this analysis to any of the other big tech innovations like operating systems, search, social media, ...

MS threw a lot of money after Windows Phone. I worked for a company that not only got access to great resources, but also plain money, just to port our app. We took the money and made the port. Needless to say, it still didn't work out for MS.

[AnthonyMouse]

Those markets have a much stronger network effect (especially social media), or were/are propped up by aggressive antitrust violations, or both.

To use your example, the problem with entering the phone market is that customers expect to buy one phone and then use it for everything. So then it needs to support everything out of the gate in order to get the first satisfied customer, meanwhile there are millions of third party apps.

Enterprise GPUs aren't like that. If one GPU supports 100% of code and another one supports 10% of code, but you're a research group where that 10% includes the thing you're doing (or you're in a position to port your own code), you can switch 100% of your GPUs. If you're a cloud provider buying a thousand GPUs to run the full gamut of applications, you can switch what proportion of your GPUs that run supported applications, instead of needing 100% coverage to switch a single one. Then lots of competing GPUs get made and fund the competition and soon put the competition's GPUs into the used market where they become obtainium and people start porting even more applications to them etc.

It also allows the competition to capture the head of the distribution first and go after the long tail after. There might be a million small projects that are tied to CUDA, but if you get the most popular models running on competing hardware, by volume that's most of the market. And once they're shipping in volume the small projects start to add support on their own.

[cyanydeez]

The second dotcom era was basically giving away product until you have a monopoly.

Really isn't hard to imagine a company trying to make a software happen by generating an environment around it.

[rkagerer]

How many of those companies are still around? It takes more than just dollars to build a vibrant and robust ecosystem.

[cyanydeez]

Twitter _seems_ to be stil around and if buying the election is a successful investment, they were "successful".

Microsoft did this also.

It happens often.

[NewLogic]

Uber is still the market leader. They were practically giving away taxi services for a long time.

[echoangle]

Why can’t you just build something that’s CUDA-compatible? You won’t have to move anyone over then. Or is the actual CUDA api patented? And will Chinese companies care about that?

[marcosdumay]

AFAIK, CUDA is protected. There are patents, and the terms of use of the compiler forbids using it on other devices.

Of course, most countries will stump over the terms of use thing (or worse, use it as evidence to go after Nvidia), and will probably ignore the patents because they are anticompetitive. It's not only China that will ignore them.

[eigenvalue]

Yes this is exactly correct! Well said

[miohtama]

AMD is failing to recreate CUDA.

Intel is dying.

Who will step in as credible competition, and when?

A trillion dollar question.

[AnthonyMouse]

AMD is actively working to recreate CUDA. "Haven't succeeded yet" is very different from having failed, and they're certainly not giving up.

Intel's fab is in trouble, but that's not the relevant part of Intel for this. They get a CUDA competitor going with GPUs built on TSMC and they're off to the races. Also, Intel's fab might very well get bailed out by the government and in the process leave them with more resources to dedicate to this.

Then you have Apple, Google, Amazon, Microsoft, any one of which have the resources to do this and they all have a reason to try.

Which isn't even considering what happens if they team up. Suppose AMD is useless at software but Google isn't and then Google does the software and releases it to the public because they're tired of paying Nvidia's margins. Suppose the whole rest of the industry gets behind an open standard.

A lot of things can happen and there's a lot of money to make them happen.

[pjc50]

While we can bet on "AMD are too sclerotic to fix their drivers even if it's an existential threat to the company", I don't think we can bet on "if we deny technology to China they won't try to copy it anyway".

[miohtama]

I agree.

Need to find this company and buy its stock when it is still early.

[matwood]

You don't need external competition to have NVDA correct. All it takes is for one or more of the big customers to say they don't need as many GPUs for any reason. It could be their in house efforts are 'good enough', or that the new models are more efficient and take less compute, or their shareholders are done letting them spend like drunken sailors. NVDAs stock was/is priced for perfection and any sort of market or margin contraction will cause the party to stop.

The danger for NVDA is their margins are so large right now, there is a ton of money chasing them not just from their typical competition like AMD, but from their own customers.