Investors returned to Nvidia stock Wednesday after CEO Jensen Huang made a compelling case at a major tech gathering for the innovation he strives for and the competitive moat he’s built. “AI is not about a chip. AI is about an infrastructure,” the founder of the artificial intelligence chip powerhouse said at the Goldman Sachs Communacopia + Technology Conference in San Francisco. That’s perhaps the single most important thing for investors to understand. Nvidia is not a traditional semiconductor company — at least not in the way we’ve thought about it in the past or currently think about other chip companies. There have been a lot of doubters on Wall Street since Nvidia reported quarterly results on Aug. 28 . It was a case of good not being good enough in an age of lofty expectations. Since then, as of Tuesday’s close, the stock lost 14%. NVDA YTD mountain Nvidia YTD On stage with Goldman Sachs CEO David Solomon, Huang was asked how he views the competition. He said: “Today’s computing is not build a chip and people can buy your chips, put it into a computer. That’s really kind of 1990s. The way that computers are built today, if you look at our new Blackwell system, we design seven different types of chips to create the system. Blackwell is one of them.” Blackwell is Nvidia’s next-generation chip platform. Unveiled in March, it’s not rolling out as quickly as expected due to some engineering challenges. Blackwell is the current focus on Wall Street and the demand dynamics are what’s driving the stock. Huang said at Communacopia that Blackwell is coming and everybody wants it. “We are ramping Blackwell. And it’s in full production. We’ll ship in Q4 and scale it, start scaling in Q4 and into next year,” he said. The demand on it is so great, and everybody wants to be first.” Huang used an autonomous vehicle to explain how so many various parts must work together to create a single unified system that operates as intended. Like a vehicle, upgrading a single component can enhance the overall performance of the entire vehicle. In other words, a cloud provider, for example, isn’t going to care as much about one component so much as they are the efficiency of the system overall. Sticking with the car analogy, think of it like a tune up. You don’t need to replace your car every year to get more performance out of it, you can swap out parts slowly and tune the car up over time to enhance its overall performance. The key to making this all work is consistency in the architecture. First, it serves to strengthen Nvidia’s lead because it makes upgrading extremely easy and efficient while making the cost to switch that much higher. So long as you remain in the Nvidia “ecosystem” you’re looking at what is essentially a “plug and play” system. Everything is designed to work together and that’s been the case since the company was founded. It’s not just about the hardware. There is a software component to making everything run smoothly — and as Huang noted, the company best equipped to optimize the software is the one that built the hardware. Second, it allows Nvidia to transfer its own pace of innovation to its customers. Companies don’t need to replace the part they got last year, as would be the case were the performance gains all about a single chip. Rather, they, like Nvidia, can focus one part of the system at a time and do incremental upgrades over time as new products are released. This also means customers don’t have to worry as much about instant obsolescence of each component, they can upgrade one part this year and another part next year. Rather than replace the entire system every year or two, customers can upgrade consistently, over time, as Nvidia launches new products with the confidence that what they buy now will work with whatever is released next. In an interview on CNBC television Wednesday, Solomon reflected on his morning discussion with Huang. Like us, the Goldman CEO said he was struck by Huang’s optimism and his pace of innovation. While ducking a question about Nvidia stock, Solomon did tell CNBC that Nvidia is a “super company” that’s well-positioned to keep succeeding. That brings us to the return on investment for Nvidia’s customers. According to Huang, every dollar spent by a company with Nvidia translates into $5 worth of rental revenue from the company’s customers. While there may be a delay between that dollar invested and that $5 of revenue realized, Huang said the improved cost dynamics are instant. It’s not as clear given the rapidly increasing demand for more compute power, but these newer systems are a better value when comparing the cost versus the performance gains. Bottom line The Nvidia discussion at Communacopia left us feeling good about the path ahead. While Wall Street is hyper-focused on Blackwell demand, and we certainly aren’t dismissing its importance, Huang’s interview reminded us that the longer-term investment thesis isn’t about Nvidia’s ability to ramp up Blackwell and then replace it a year from now with something so much better that it demands upgrades. Rather, it’s about Nvidia’s ability to consistently improve the performance of the system overall, both in terms of the hardware it offers and the software it makes available to optimize that system. (Jim Cramer’s Charitable Trust is long NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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Nvidia’s CEO Jensen Huang delivers his keystone speech ahead of Computex 2024 in Taipei on June 2, 2024.
Sam Yeh | AFP | Getty Images
Investors returned to Nvidia stock Wednesday after CEO Jensen Huang made a compelling case at a major tech gathering for the innovation he strives for and the competitive moat he’s built.
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