The world is changing, and it’s changing at an accelerating rate. In the 2018 stockmarketHQ Silicone Valley HQ Tours series we visited all the Big Tech companies. The employees knew that there would be a ‘Next Big Thing’, but nobody knew what it was. Well that 'Next Big Thing' is happening and it is going to be powered by chips.
Chips power cell phones, chips power self driving electric vehicles, chips power supercomputers, chips power the cloud and chips are powering the accelerating rate of change in technology and how we use it.
THE PAST FUTURE
Before looking at where we are going, let’s reflect on the 'past future' and where we came from, by watching a short video.
That day, in September 2007, was the day that started a secular change in societies behaviour and launched the mobile world. That was only fourteen years ago, and in 2007 it was… the ‘Next Big Thing’. It took a few more years to develop and gain momentum, but look how it has changed societies behaviour.
99.8% of the population will not know what a Graphics Processor Unit (GPU) is or what it does, which is likely why no one has heard of Nvidia even though it is the 8th largest company in the S&P500 index. Yet, everyone has heard of Intel because it has been the longstanding leader in making the Central Processing Units (CPU’s) that powered home computers for decades.
To understand the difference between a CPU and a GPU we recommend watching the following video
To try and simplify and summarize that,
CPU - will do multiple tasks very rapidly in ‘series’ that means it has to do the first task, then switch to the next task, then switch to the third task etc.
GPU - will do multiple tasks in ‘parallel’, that means it will do all tasks at the same time.
Initially, GPU’s were ideally suited and built for computer game graphics which required thousands of calculations to be done simultaneously. Over the past few years, Nvidia has evolved their GPU’s, developing them for intense application such as Artificial Intelligence.
THE FUTURE
Now that we have looked at the 'past future', what a GPU is and what it can be used for, let’s look at the direction of the future.
Consider the very powerful statement in the video, “the physical version is the replica of the digital”, and the efficiencies in both scale and scope that collaboration and design in the Omniverse provides to corporations. Also note that Nvidia not only makes the GPU’s that will power the graphics of the ‘verse’, but they are also making the software specifically to operate on their GPU’s. That software becomes a ‘pay for use’ platform, or a recurring revenue stream.
Nvidia’s focus is currently on the development of corporate applications, but the Virtual World will have no boundaries.
In October, Facebook announced it’s version of the Virtual World called the Metverse. Mark Zuckerberg believes so strongly in the concepts future that he changed the name of Facebook to Meta and has stated that meta will be committing tens of billions of dollars to the Metaverse development over the coming years. His vision is of a social facebook type virtual world which can be seen in the following video
It’s important to understand the difference between the Omniverse and the Metaverse. Nvidia’s strategy focuses on profit through hardware and ‘software as a service’ sales. The Facebook (Meta) group of companies (facebook, instagram, whatsapp) generate profit as advertising platforms, and they will monetize the metaverse as an advertising platform.
There will be other ‘verses’. Microsoft announced a $65 Billion dollar takeover of Activision to develop it’s ‘verse’ as a gaming platform. Roblox is a leading gaming virtual world ‘verse’ which has recently partnered with Nike for product placement advertising and sales of merchandise within the virtual world. Consider Disney with a virtual Marvel Cinematic Universe. It can also be certain that Apple, Amazon and Google will not concede the ‘Next Big Thing’ to facebook (meta).
THE BIG SPENDERS
Let’s look at what the big corporations are saying about the ‘verse’.
Boeing - "… the big variables in our financial performance over time usually relate to shortfalls in the development process…My intent and my hope in light of all of the new tools that are available to us, both in terms of digital modeling on the original design but then also being able to use that same modeling to perfect manufacturing processes at scale and ultimately, serviceability, that is where the action is. That is where the next airplane is going to differentiate itself more than any other in my opinion. - BOEING CEO DAVE CALHOUN"
Amazon - "… just under 40% of that capex (capital expenditure) is going into infrastructure, most of it feeding AWS… Meta, the parent company of Facebook, Instagram, and WhatsApp, selected AWS as its long-term strategic cloud provider to accelerate artificial intelligence research and development. - AMAZON CEO ANDY JASSY"
Disney - "... It is absolutely top of mind because we realize that in the future, you can call it what you want. You want to call it metaverse. You want to call it the blending of the physical and digital experiences… one of my three pillars is innovation and specifically technological innovation because we realize that this is going to be an important part of telling story in that third dimension, that lean forward interactive dimension. - DISNEY CEO BOB CHAPEK"
Microsoft - "...The way we see this is as an opportunity in a very classic Microsoft sense, both at the platform infrastructure level and on the application level…. The first place where we see this is the increasing digitization of people, places, and things to be able to really help businesses automate processes to the next level… Just like the first wave of the internet allowed everybody to build a website, I think the next wave of the internet will be a more open world where people can build their own metaverse worlds, whether they’re organizations or game developers or anyone else. - MICROSOFT CEO SATYA NADELLA"
INVESTMENT THESIS
When we look at an Investment Thesis it’s important to consider it within the context of three areas.
Best in Class - Nvidia is the leading graphics card manufacturer. In the February 16, 2022 earnings report, Nvidia reported record revenue with strong forward guidance. The CEO, Jensen Huang is widely regarded a a visionary within his field.
Secular growth trend - corporations are investing billions in the development of the next generation of the internet.
strong macroeconomic environment - In the past, economic stimulus would have gone into ‘old infrastructure’ development to improve public works projects and create jobs. The $12T of economic stimulus which came as a result of the pandemic has gone into the ‘New Infrastructure’, technology, advancing development by several years.
The Investment Thesis is founded on three pillars
growing secular trend - ‘Gaming’ as a form of entertainment is growing at an accelerating rate. This was recognized in the recent Netflix Earnings Report which expressed that gaming was becoming one of the primary competitors to Netflix for screen time.
Refresh Cycle - Nvidia developed ‘ray tracing’ technology (Nvidia RTX chip) which allows faster, more detailed graphics within games. Over 200 games have recently been released which support the RTX chip. In the most recent earnings report Nvidia stated, “We estimate that a 1/4 of our installed base has adopted RTX GPUs. Looking ahead, we expect continued upgrades as well as growth from NVIDIA GeForce users, given rapidly expanding RTX support and the growing popularity of gaming, esports, content creation and streaming.” This transition by gaming developers will require gamers to upgrade their systems.
2. CHIPS in EVERYTHING - GPU’s are the processors which handle multiple tasks simultaneously. They are required for applications which use Artificial Intelligence, machine learning, deep learning. The secular trend towards digitization requires data to be stored in the cloud and large data centres, GPU’s process that data. Everything from factory robotics to self driving vehicles takes in data from sensors, that data gets processed and converts into automation.
Chips improve efficiency, reduce costs, eliminate errors and increase productivity and profitability for corporations.
3. The ‘NEXT BIG THING’ - Nobody knows exactly what it will be, what form it will take or how society will integrate it into social behaviour, but the CEO’s of Trillion dollar companies are telling you the ‘Next Big Thing’ has already started. Those CEO’s are committing Billions of dollars to its development. Consider some of the applications,
Corporations - the design of entire factories, production lines and even machinery as complex as aircraft, all being designed within a virtual design world through collaboration between designers and engineers. Then the real world version being built as a replica of its digital original. Nvidia not only makes the chips that power the graphics, but also is developing the software with a ‘pay for use’ philosophy which provides recurring revenue streams.
Social Networking - gaming, social media such as facebook and business meetings currently conducted on Zoom, all currently 2Dimensional platforms, being combined into one 3D virtual world. This Virtual World will be monetized. That virtual world will be graphics and data dependant. Nvidia makes the chips that will be required to power that virtual world.
Automation of human interaction - consider the potential of Jensen Huang’s Omniverse Avatar at the grocery store check out counter, the airport information kiosk, taking an order at McDonald’s or acting in customer support roles. A totally customizable Artificial Intelligence Avatar which works 24 hours, is never sick and has full knowledge of products and services. Jensen Huang states,
“…25 million or so places where you would have a digital Avatar as customer support or checkout, smart retail, smart warehouse, smart whatever it is… behind all of that, call it a couple of hundred million digital agents, intelligent agents in robots and Avatars, at $1,000 per agent, per year, behind it are NVIDIA GPUs and PCs. NVIDIA GPUs in the cloud and NVIDIA GPUs for Omniverse servers. - NVIDIA CEO JENSEN HUANG”
At $1000/agent that is a massive cost savings to employers, and a massive potential recurring revenue stream for Nvidia.
RISKS
There are risks to an investment in chip manufacturers
What does that mean at stockmarketHQ
That all sounds like science fiction, but consider the past ten years.
The CEO’s of Trillion dollar companies are saying the future has already started and the ‘Next Big Thing’ is already on its way and they are pouring billions into its development and there are millions of designers, architects and engineers collaborating.
In marketing, the company that is first to market often has first mover advantage in becoming the ‘standard’.
Nobody knows what form the ‘Next Big Thing’ will take or how society will integrate it into their lives, but there are three distinct applications
Whether it is the Omniverse, the Metaverse or the Disney Marvel Cinematic Universe they will all be
- immersive and graphics intensive
- artificial intelligence based
- data centre dependant
Nvidia is developing an ecosystem of hardware and software on which all of these platforms will build and change societal behaviours.
Todays Big Tech CEO’s are visionaries with hundreds of billions of dollars of capital funding. Take a moment to consider this powerful statement by Nvidia CEO Jensen Huang
“Today's Internet is 2D and AI is in the cloud. The next phase of the Internet will be 3D and AI will be connected to the physical world.” - Jensen Huang
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