A Titan's Grip on Tech's Future

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Author: Daniel Seiler

Date: March 24, 2024

In the heart of technological innovation, where the spotlight shines brightest, Nvidia commands attention. Nvidia's recent developers' conference on March 18th was no exception. But the omnipresent question is: what does Nvidia's future hold?

At first glance, financial analysts must point to Nvidia's unsustainable P/E ratio, hovering around 80, with an earnings yield of merely 1.3% per annum. It's an understatement to say that it's not for the faint-hearted. After all, the relentless laws of financial gravity cannot be ignored.

Quants, however, view Nvidia through a much more positive lens. Let me explain. Cast your mind back to the late 90s—that's when I was deep into coding algorithms for solving intertemporal asset allocation challenges modeled by various differential equations. Backtests were a Herculean task, often running for endless hours or producing memory errors at the end of the routine. Back then, parallel computing provided a beacon of hope, yet it still meant hours of waiting. And the computational tasks still held the power to ruin one's day.

Fast forward to today, the landscape has changed dramatically. We now harness clouds, with Nvidia providing speed and efficiency. A USD 9.90 monthly subscription to Google Colab provides fast service, thanks to Nvidia. Yet, I still sometimes experience a similar angst as in the late 1990s: miss the window for a V100 or A100 GPU, and you've got another day ruined. You might switch to a more costly service or even buy one of Nvidia's A100 GPUs (at a modest price tag of CHF 45,000 on Galaxus). But the key message is clear: in the coming years, the absence of Nvidia GPUs would be comparable to lacking a computer altogether in the 2000s. Nvidia is in a unique position holding a quasi-monopoly. No other player seem to be able to compete with Nvidia's innovation pace and production capacity.

At Nvidia's developers' conference, the unveiling of the B100 chip was a game-changer—targeting AI computing with improved energy and computing efficiency, in stark contrast to the general-purpose-oriented predecessors. Post-event, Nvidia's stock soared over the past 5 days +7.3%, while rivals like AMD returned -6.0% and Intel declined -0.2%—a clear indicator of Nvidia's dominance in semiconductors.

In summary, Nvidia is poised to maintain its centrality in the tech universe. With a P/E ratio of 80, or perhaps even higher on the horizon, one thing is certain: Nvidia's influence is only set to grow. Let's watch this giant shape our technological journey—one innovation at a time.