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The crash is absolutely rational; the cascading effect highlights the missing moat for companies like OpenAI. Without a moat, no investor will provide these com

by sek 2y ago

The crash is absolutely rational; the cascading effect highlights the missing moat for companies like OpenAI. Without a moat, no investor will provide these companies with the billions that fueled most of the demand. This demand was essential for NVIDIA to squeeze such companies with incredible profit margins. NVIDIA was overvalued before, and this correction is entirely justified. The larger impact of DeepSeek is more challenging to grasp. While companies like Google and Meta could benefit in the long term from this development, they still overpaid for an excessive number of GPUs. The rise in their stock prices was assumed to be driven by the moat they were expected to develop themselves. I was always skeptical of those valuations. LLM inference was highly likely to become commoditized in the future anyway.

AnthonyMouse 2y ago
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.
- bo1024 2y ago
  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 2y ago
    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 2y ago
      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 2y ago
        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.
- deleted 2y ago
  [deleted]
- d1sxeyes 2y ago
  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.
  - marcosdumay 2y ago
    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 2y ago
      What if it just… doesn’t?
      - marcosdumay 2y ago
        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 2y ago
        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”.
- miohtama 2y ago
  AMD is failing to recreate CUDA. Intel is dying. Who will step in as credible competition, and when? A trillion dollar question.
  - pjc50 2y ago
    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 2y ago
      I agree. Need to find this company and buy its stock when it is still early.
  - matwood 2y ago
    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.
  - AnthonyMouse 2y ago
    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.
- matwood 2y ago
  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 2y ago
    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 2y ago
  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....
- eigenvalue 2y ago
  Yes this is exactly correct! Well said
camillomiller 2y ago
This is partially why Apple is the one that stands to gain more, and it showed. Their "small models, on device" approach can only be perfected with something like DeepSeek, and they're not exposed to NVIDIA pricing, nor have to prove investors that their approach is still valid.
- aurareturn 2y ago
  Until AGI removes the need for iOS. Apple is not immune to AI disruption. The Rabbit R1 was a scam but the concept was the right approach. It was just 5 years too early. You don’t need an iPhone with AGI. You just need a 5G device with a screen, connected to an AGI.
  - kristiandupont 2y ago
    I don't disagree, but >You don’t need an iPhone with AGI. You just need a 5G device with a screen, connected to an AGI. ..it seems that that is exactly what the iPhone 20 or whatever will be?
    - Urahandystar 2y ago
      Surely its just a watch.
  - kmmlng 2y ago
    I keep seeing this argument, but I don't buy it at all. I want a phone with an AGI, not a phone that is only AGI. Often it's just easier to press a button rather than talk to an AI, regardless how smart it is. I have no interest in natural language being the only interface to my device, that sounds awful. In public, I want to preserve my privacy. I do not want to have everyone listening in on what I'm doing. If we can create an AGI that can literally read my mind, okay, maybe that's a better interface than the current one, but we are far away from that scenario. Until then, I'm convinced users will prefer a phone with AI functionalities rather than the reverse. It's easier for a phone company to create such a phone than it is for an AI company.
  - 2y ago
bdelmas 2y ago
The crash of NVIDIA is not about the moat of OpenAI. But because DeepSeek was able to cut training costs from billions to millions (and with even better performance). This means cheaper training but it also proves that OpenAI was not at the cutting edge of what was possible in training algorithms and that there are still huge gaps and disruptions possible in this area. So there is a lot less need to scale by pumping more and more GPUs but instead to invest in research that can cut down the cost. More gaps mean more possibility to cut costs and less of a need to buy GPUs to scale in terms of model quality. For NVIDIA that means that all the GPUs of today are good enough for a long time and people will invest a lot less in them and a lot more in research like this to cut costs. (But I am sure they will be fine)

by sek 2y ago

AnthonyMouse 2y ago

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.

bo1024 2y ago
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 2y ago
  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 2y ago
    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 2y ago
      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.
deleted 2y ago
[deleted]
d1sxeyes 2y ago
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.
- marcosdumay 2y ago
  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 2y ago
    What if it just… doesn’t?
    - marcosdumay 2y ago
      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 2y ago
        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”.
miohtama 2y ago
AMD is failing to recreate CUDA. Intel is dying. Who will step in as credible competition, and when? A trillion dollar question.
- pjc50 2y ago
  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 2y ago
    I agree. Need to find this company and buy its stock when it is still early.
- matwood 2y ago
  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.
- AnthonyMouse 2y ago
  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.
matwood 2y ago
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 2y ago
  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 2y ago
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....
eigenvalue 2y ago
Yes this is exactly correct! Well said

camillomiller 2y ago

This is partially why Apple is the one that stands to gain more, and it showed. Their "small models, on device" approach can only be perfected with something like DeepSeek, and they're not exposed to NVIDIA pricing, nor have to prove investors that their approach is still valid.

aurareturn 2y ago
Until AGI removes the need for iOS. Apple is not immune to AI disruption. The Rabbit R1 was a scam but the concept was the right approach. It was just 5 years too early. You don’t need an iPhone with AGI. You just need a 5G device with a screen, connected to an AGI.
- kristiandupont 2y ago
  I don't disagree, but >You don’t need an iPhone with AGI. You just need a 5G device with a screen, connected to an AGI. ..it seems that that is exactly what the iPhone 20 or whatever will be?
  - Urahandystar 2y ago
    Surely its just a watch.
- kmmlng 2y ago
  I keep seeing this argument, but I don't buy it at all. I want a phone with an AGI, not a phone that is only AGI. Often it's just easier to press a button rather than talk to an AI, regardless how smart it is. I have no interest in natural language being the only interface to my device, that sounds awful. In public, I want to preserve my privacy. I do not want to have everyone listening in on what I'm doing. If we can create an AGI that can literally read my mind, okay, maybe that's a better interface than the current one, but we are far away from that scenario. Until then, I'm convinced users will prefer a phone with AI functionalities rather than the reverse. It's easier for a phone company to create such a phone than it is for an AI company.
- 2y ago

bdelmas 2y ago

The crash of NVIDIA is not about the moat of OpenAI. But because DeepSeek was able to cut training costs from billions to millions (and with even better performance). This means cheaper training but it also proves that OpenAI was not at the cutting edge of what was possible in training algorithms and that there are still huge gaps and disruptions possible in this area. So there is a lot less need to scale by pumping more and more GPUs but instead to invest in research that can cut down the cost. More gaps mean more possibility to cut costs and less of a need to buy GPUs to scale in terms of model quality. For NVIDIA that means that all the GPUs of today are good enough for a long time and people will invest a lot less in them and a lot more in research like this to cut costs. (But I am sure they will be fine)