To The Moon

$NVIDIA Corp(NVDA)$ boosters keep saying the AI revolution is in its early stages.

But a reckoning of Big Tech’s AI spending is already brewing, highlighting a disconnect between (1) tech’s supposed world-conquering potential and (2) absence of meaningful returns on investment (ROI) for companies not named Nvidia.

(Fortune reported recently that other Big Tech employees are getting jealous of Nvidians, as they're called.)

That snag was on full display during Nvidia’s earnings call.

Several analysts asked CEO Jensen Huang about:

• Where all that AI money is going?

• How Nvidia views questions about the industry’s massive capital expenditures & their more speculative returns?

For Nvidia, a few other hardware companies, and AI bulls, those returns are already here.

For everyone else in Big Tech and beyond, the results are harder to see:

• It seems to depend on each company’s timeline.

• Also, whether investors can accept retreating from exponential gains to merely linear forward progress?

Can the hype over AI simultaneously be at the end of its cycle and the beginning of another?

Looking beyond Nvidia’s earnings stumble, where Nvidia beat expectations but did not pulverize them like its blockbuster quarters, the appetite for AI investments does not seem close to being met.

While it’s true the AI trade no longer resembles the meme-coin frenzy of its earlier days, the latest wave of scrutiny over AI spending registers more as a slight recalibration than a paradigm shift.

Take OpenAI’s latest reported valuation.

On the same day Huang was fielding stubborn queries about ROI, the Wall Street Journal (WSJ) reported the AI darling that kicked this whole thing off was in fundraising talks valuing the ChatGPT maker above $100 billion.

A valuation on par with that of $Starbucks(SBUX)$ and $BP PLC(BP)$ suggests there is enough hullabaloo that companies & investors are still far away from an abandonment or pullback.

Naysayers might say that the financial excitement surrounding OpenAI might not be the most reliable measure of the viability of AI technology.

Meanwhile, the tech giants are still in investing mode.

For all the chatter of (a) an unsustainable AI moment, (b) of ballooning capex, and (c) of uncertain revenue streams, Big Tech’s CEOs are fully onboard.

That goes a long way in explaining Nvidia’s +122% revenue growth.

At the same time, it also underscores another mismatch between (a) providing AI chips and (b) promising revolutionary, unproven software that relies on those chips.

Nvidia's unique growth story is reliant on the tech platforms' AI aspirations.

Demand for Nvidia’s hardware continues to soar as tech companies fuse their identities and their spending to AI.

At some point in time, investor gripes over tangible returns may lead to a scale-back that will hurt Nvidia.

Until then, Big Tech CEOs have bet so big at the AI casino that it's hard to fathom what would convince them to pack up and stumble home.

When you are high enough on the org chart, sunk costs lose meaning.

Loss chasing can be mistaken for perseverance.

Now that all the major AI players have reported, does the tech world's uneven earnings season represent a buying opportunity or a turn to a more exacting appraisal of AI's true worth?

Until the investments slow, it will be hard to know.

My viewpoints: (mine only)

This is how I view the whole AI phenomenon.

• I tend to agree tha

• t AI is still in its nascent state.

• Lest we forget, ChatGPT was only unveiled to the world in November 2022.

• We are only beginning to scratch the AI-surface that is still many layers deep.

• The Chip industry that benefitted from AI’s first rush due to the speed required to power generative AI tool.

• AI has quietly transitioned into subsequent phase where infrastructure supporting AI is being fortified eg. additional electricity required for AI processing, optical fibre for high data volume pass through, more powerful computer servers to host AI modelling & processing etc…

• Nvidia’s demand is tapering because not every company out there is a mega-cap with deep pockets to afford the very expensive H100 AI-chip.

• Like it or not, when it comes to any business (AI inclusive), price is still an important factor.

• Therefore, Nvidia’s slight slowdown is to be expected.

• It is also why Nvidia’s next generation of AI chip - The Blackwell is very important based on price point factor.

• The more affordable Blackwell with little compromise to speed will help to propel AI in the next phase.

Investors need to find US companies that succeed in using AI to work productively (and invest in them “now”) with less staff, translating to lower costs of operations, widenly profit margain as a result.

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