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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
When a rival claims that they need $7tn to keep up, you know you’re in a good position. Nvidia’s command over chips tailored for artificial intelligence led OpenAI’s Sam Altman to set a wild goal earlier this month. Demand for AI chips continues to outstrip supply. This is reflected in Nvidia’s forecast that sales in the current quarter will reach a record $24bn — three times higher than last year.
The quarterly earnings that Nvidia released on Wednesday were framed by some commentators as a referendum on AI. This is not the case. End users are still getting to grips with AI tools. The extent of their impact is up for debate.
Instead, Nvidia’s earnings show the strength of spending on infrastructure by companies and countries determined not to be left behind while AI is still in development. If you listened to other tech earnings you would already know this. Amazon, Alphabet and Microsoft, all Nvidia customers, said capex would rise. Meta’s Mark Zuckerberg went further. In January, he declared that his company would have 350,000 of Nvidia’s H100 AI chips by the end of the year. Nvidia does not specify their price but it is estimated that they are up to $40,000 apiece. Even if Meta paid half that, it would mean $7bn. This sort of demand makes up for the fact that US government intervention has curbed Nvidia’s sales to China.
Because Nvidia designs chips instead of making them, gross margins are high at 76 per cent. While infrastructure spending at other companies is booming, Nvidia’s own spending increase is modest next to revenue growth. Hence cash flow from operating activities for the fourth quarter of $11.5bn, up from just over $2bn a year ago. Nvidia may be thinking about ways to put that to work via mergers and acquisitions.
Companies want more autonomy in AI chips. But changing the status quo will be expensive. SoftBank prices its rival AI chip plan at $100bn. Companies like Alphabet are developing their own chips but still rely on Nvidia graphics processors, or GPUs. Well-funded AI hardware start-ups are struggling to make headway, says tech research company Omdia. It points out that M&A activity in the sector is relatively low.
While competitors try to catch up, Nvidia is working on its next next-generation AI chip — the B100. It is possible that, like a new iPhone, customers will hold off purchase plans until the new chip launches. Then again, high demand for existing chips suggest they will continue to take whatever they can get.
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