Dylan Patel on the AI Chip Race - NVIDIA, Intel & the US Government vs. China

How you buy GPUs, it's like buying cocaine. You call up a couple people, you text a couple people, you ask, 'Yo, how much you got? What's the price?'

If you're two arch nemesis suddenly team up, it's the worst possible news you can have. I did not see this coming. I think it's an amazing development.

Like a Warren Buffett coming into a stock. Jensen is like the Buffett effect for the semiconductor world.

It's kind of poetic that everything's gone full circle and Intel's sort of crawling to Nvidia.

Thanks for having me.

I think it's hilarious that Nvidia could invest, it gets announced, and their investment's already up 30%. $5 billion investment, a billion dollar profit already, right? I think it's fun because they need their customers to really have big buy-in. So when their potential customers buy in and commit to certain types of products, it makes a lot of sense, right? And it's kind of funny in a way because in the past there was this whole thing around how Intel was sued for being anti-competitive with their chipsets and Nvidia actually got a settlement from Intel way back when the graphics were separate from the GPU and the graphics were really put on the chipset which had all this other IO like USB and all this stuff. So it's kind of a funny turn of events that now Intel is going to make a chiplet and package it alongside a chiplet from Nvidia and then that's a PC product, right? So, you know, it's kind of poetic that everything's gone full circle and Intel's sort of crawling to Nvidia, but actually it might just be the best device, right? I don't want an ARM laptop because it can't do a lot of things and so an x86 laptop with Nvidia graphics fully integrated would be probably the best product in the market.

I mean, sure. I hope, right? I'm a perpetual optimist on Intel because I have to be. I was thinking that the structure of the deal that at least a lot of the government folks and Intel were sort of trying to go for was people give big customers and the biggest suppliers directly give capital to Intel. But this is sort of the other way around where they're buying some of the stock, having some ownership, but they're not really diluting the other shareholders and then the other shareholders will get diluted slash everyone will get diluted when Intel finally does raise the capital from the capital markets. But because they've announced these deals and they're pretty small, right? Five billion Nvidia, two billion SoftBank, US government was 10. You know, these are still relatively small.

Yeah. On the nature of things, right? I mean, last time I think I said Intel needs like $50 billion right now. Now when they go to the capital markets it's better and hopefully they get another couple of these announcements. Maybe there's all sorts of speculation that Trump is involved in getting these companies to invest, Nvidia, and now the government as well of course. And now is Apple going to come invest and also do something with Intel or who else will come in? And that'll really boost investor confidence and they can dilute slash go get debt. Like a Warren Buffett coming into a stock. Jensen is like the Buffett effect for the semiconductor world.

Yeah, I think when you sort of zoom out to even like, let's walk from 2020 because I think it's really important to recognize how cracked Huawei is or even just historically like they've always been really good. Sure, initially they stole like Cisco source code and firmware and all this stuff, but then they rapidly passed them up as well as every other telecom company. In 2020, they released an Ascend chip and submitted to impartial public benchmarks and they were the first to bring 7nm AI chips to market. They were the first to have that. Right now, you could still say Nvidia was ahead but the gap was like nothing, right? And this is when they could access the full foreign supply chain. This was when they just passed Apple to be TSMC's largest customer. They were, you know, clearly ahead of everyone on a manufacturing supply chain sort of design standpoint on a total basis. Right now, of course, Nvidia still had higher market share, but it was so minuscule then they could have really taken over the market. Huawei got banned by the Trump one administration from accessing and then it went into effect in 2020, right? The full ban. And so they were only able to make a small volume of these chips, but they had trained significant models on these chips that they made then. And then over the next couple years, Nvidia continued to accelerate. Huawei because they were banned from TSMC had to go and try and figure out how to manufacture at SMIC, the domestic TSMC. And then they were also in parallel trying to go through shell companies to manufacture at TSMC and acquire memory from Korea and so on and so forth. So by the end of 24 this had gotten in full swing and it was caught, right? It was caught and they finally shut it down. But they were able to acquire three million chips, 2.9 million chips from TSMC through these other entities, right? Roughly $500 million worth of orders. Which ends up being a billion dollar fine that the US government gave TSMC if I recall correctly or at least there was a Reuters article. I don't know if they actually issued it which is important and interesting to gauge because the number of Ascends floating out there has not consumed this entire capacity yet, right? So now we get to 2025, right? The H20 got banned in the beginning of the year. Nvidia had to write off huge amounts of money. Our revenue estimate for Nvidia in China for just H20 was north of 20 billion because that's what they were booking in capacity slash had to write off and it got banned. They cut the supply chain. Like they just said, 'No, we're not doing this anymore.' They had their inventory gets reapproved. They resell the inventory. But now they're like, 'Do we even restart production?' is Nvidia's question. And now you have China saying, 'Hey, like we don't need Nvidia. We have domestic alternatives, right? Whether it be Huawei or Cambricon.'

These companies have, you know, capacity, but most of this capacity is still foreign produced, right? Whether it be wafers from TSMC, memory from Korea, right? Samsung and SK Hynix. So the question is sort of like how much can they do domestically and there's sort of two fronts there, right? There's the logic i.e. replacing TSMC and there's the memory i.e. replacing SK Hynix, Samsung, Micron. And on the logic side, they're behind, but they're really ramping there. And I think they can sort of get to the production capacity estimates needed. And the US is still allowing them to import all the equipment necessary pretty much. The bans are really for beyond the current generation of technology, beyond 7 nanometer. The bans are really for 5 nanometer and below. Even though the government says they're for 14 nanometer, the actual equipment that's banned is only for below 7 nanometer. And so they'll be able to make a lot of 7 nanometer AI chips and maybe even get to 5 using existing equipment for 5 nanometer rather than using the new techniques. And so there's the logic side and then there's the memory side. And the aspect of Huawei's announcement that was surprising was that they're doing custom memory, right? That's the part that is sort of like, hey, this is really exciting. They announced two different types of chips for next year. One that's focused on recommendation systems and prefill and then one that's focused on decode.

Yeah. So, and at Nvidia, the same thing. They just announced a prefill specific chip recently. There's numerous AI hardware startups that are really focusing on prefill versus decode. And so, this sort of split of inference up into two workloads. Huawei is doing the same thing for their next year chip. And what's interesting is the decode one has custom HBM. What does that mean? What is the manufacturing supply chain because that's the one that's tricky, right? How much can they manufacture of that custom HBM? And Nvidia and others are also adopting custom HBM only starting next year, right? So, it's not like, you know, yes, the manufacturing capacity is not there. Maybe it's going to consume a bit more power, it's going to be slightly lower bandwidth, but the fact that they're able to do some of the same things that Nvidia plans to do, AMD plans to do in their memory is evidence that they're catching up. But then, the main question that remains is production capacity. So, as far as like, hey, Nvidia's banned in China, right? Like, they're saying don't buy Nvidia chips. I think for a period of time, that's fine for China, right? From a perspective of, hey, I'm China. That's fine because you have all this capacity that you shipped in 2024 that you haven't turned into AI chips. Now you're turning them into AI chips. You're running all that stockpile down. What about the transition from running that stockpile down to ramping your new stuff, right? And that transition is the one that's really tricky. China's either shooting itself in the foot by not purchasing Nvidia chips during that time period or China's able to ramp.

I think they'll be able to ramp. I think it'll take a little bit longer. And there will be a sort of a gap in between where China probably backtracks and says it's fine, like ByteDance is begging for Nvidia chips, right? Like they don't want to use, they use some Cambricon, they use some Huawei, but they really want to use Nvidia because it's way better. They don't care about the domestic supply chain. They want to make the best models. They want to deploy their AI as efficiently as possible. And so this is like, the government can mandate them to not do it, right? So it's not that Nvidia is not competitive, it's that the government is sort of trying to instigate it. And then I guess the last sort of thing is like, you know, there's always the argument of like, hey, if banning Nvidia chips to China is so good for China, why didn't China do it for itself? And they're finally doing it for themselves. So again, it'll be interesting to see. Smuggling is still happening, right? Reexportation of chips from other countries to China, that is still happening at some volume, low volume. Lower medium volume, right? Then the direct shipments of Nvidia chips that are legally allowed to China are not necessarily happening today but may have to restart at some point because China won't have the production capacity to, you know, they would just have so many fewer AI chips being deployed domestically versus the US and at some point you kind of have to pick like am I all about the internal supply chain or am I all about chasing super powerful AI.

Yeah. So, in the report we did a few weeks ago about the production capacity of Huawei and the supply chain, there was a bit in there that we wrote about how honestly like if you are China and you want Nvidia, you do want Nvidia chips actually, how do you play this, right? And it's by hyping up your domestic supply chain and it's like, yes, we can do everything. Huawei announced the most crazy [__] possible. Announced seven years of roadmaps that are so... they read your report basically.

And then like say we're banning Nvidia, right? And then the government official is going to think alongside sort of lobbying from domestic players like of course we want to ship them better AI chips like we're losing this market we can't lose this market. And it's sort of like it is 10,000 IQ, right? And we're here playing checkers while they're playing chess.

I think production capacity wise it is still absolutely a bottleneck. Certain types of equipment required for making HBM need to be imported. They're working on domestic solutions, but as far as we know, they have not imported enough equipment for this. Although if you look at Chinese import data for different types of equipment, right, fabs spend roughly different amounts of money on lithography, etch, deposition, metrology, right? Like these different steps. And historically lithography has hovered around 17-18%, with EUV it grew to 25%. But China because they wanted to stockpile lithography and they were worried about the coming ban, they were importing lithography at a much higher rate than that, right? Like 30-40% of their equipment imports were lithography and they were just stockpiling lithography equipment. This is sort of reversed now in that like, hey, if I want to... and so if you look at the monthly import export data both into provinces in China but also out of countries, you can see that etch specifically is skyrocketing. And the main thing about stacking HBM is that you have to, when you have each wafer you have to etch, create this thing called a through silicon via so it can connect from the top to bottom and then you stack them on top of each other, right? 12 high, 16 high for HBM, that's how you make super high bandwidth memory. And their imports for etch is skyrocketing now. So it's like they don't have the production capacity yet. How fast can they ramp it as a function of how much equipment can they get? A and B like the yields, right? Improving yields is really hard on manufacturing. Intel and Samsung are really good and TSMC is just amazing. Not that those companies suck, like I think is a better way to put it. And so it's those two things. I think yield, they haven't even started production of HBM3, right? They've only done some sampling of HBM2. HBM3 came out like a few years ago so there's still quite a bit of ways on going up the learning curve. I obviously expect them to catch up faster than it took the technology to be developed because it exists, right? In the world we know how to do it, it's just a matter of actually doing it versus inventing it. And then the other one is sort of the production capacity. A couple months of import export data is not enough to set up for years worth of supply chain buildup, right? Which is what we have today in Korea for the Korean companies. Now Hynix is also investing in the US in Illinois and then Micron's primarily in Japan, the American memory companies primarily in Japan and Taiwan but they're also expanding in Singapore and the US now. Like there's so much capital that's been invested. It would take some time for China to build up that production capacity to actually match the West and when I say the West I mean East Asia, non-China East Asia in production capacity. So it'll take some time to get there and I don't think, I think it's like, hey, we can design this, it's always a question of can we manufacture. And then the thing like that Jensen would say is like you're betting on China not being able to manufacture, right? You know, that's a matter of when not if.

And that's the whole calculus that I think the US government has to be aware of when they're like, hey, what level of AI chips do we sell? Do we sell everything? Probably not because AI is far more powerful and the end market of AI is going to be way larger than the end market of semiconductors and equipment. Do we sell, what level do we sell at? Well, how much can China make at each specific performance tier? And then, analyze that and what's the volume and then figure out what is okay, which is like maybe a little bit above or around the same level.

It's both partially true that he's afraid of Huawei more than he is like an AMD, right? He called them formidable.

Well, like I mean like every other, Huawei's beat Apple, right? They passed Apple up in TSMC orders. They passed Apple up in phone market share, not in the US but in many parts of the world before the bans came down and then even now they're growing back again in market share without western supply chains. You know, they've done this to numerous other industries. I would say Apple's a formidable competitor, right? Like they've beaten a lot of industries and so it's reasonable that he's afraid of them. It's sort of, you know, and he's not afraid of AMD. So I think the best thing is like try and sow as much doubt on what Huawei announced is reality rather than their hope target.

And so away all doubt on manufacturing capacity which I think is not fair, right? Like I think manufacturing capacity is a real bottleneck for them. And then the yield learning is a real bottleneck, temporary maybe. We'll see how long and we'll see how fast the rest of the Nvidia technology advances past what Huawei is capable of, right? And how fast Huawei is able to close the gap. But I think his main sort of pitch would be Huawei is real. They're a formidable competitor. They're going to take over not just the Chinese market, but also foreign markets, right? Whether it be the Middle East or Southeast Asia or South Asia or Europe or Latam, right? Everywhere besides America. And the sort of, there's a, I think Noah Smith has this analogy, right? This whole idea is that you should go China, right? Make them have their own domestic industry that is so different from the rest of the world, right? Kind of what happened with Japan in the 70s and 80s and 90s, their PCs were so specific and hyper optimized to the Japanese market with like the weird, I don't know if you've seen the weird scroll wheel on these Japanese PCs like you literally like it's like you go like this and it scrolls right and it's like and then the touchpad is a circle and then that's around it. It's like things like that are so weird.

And the rest of the world doesn't care but Japan market likes it, right? His whole idea is like let's go them i.e. keep their technology within China and then that's like dead weight loss and they never expand outside versus we serve the whole world. But the whole risk is that the opposite can also happen, right? Our technology is hyper optimized to running language models at this scale and RL and you keep, hardware software co-design can take you down a path of the tree that is a dead end and then China because they're not allowed to access this tree, they're like, 'Oh, okay.' And then they end up in the optimal spot, right? We hit a local minima. They had a global maxima, right? Like that sort of technological goalposting is sort of what Noah Smith's analogy is. I like it a lot. I don't know if it's accurate, but it's an interesting one.

Fair enough. There's a lot embedded in their numbers now. But what's interesting is consensus for the banks is like across the hyperscalers. So Microsoft, CoreWeave, Amazon, Google and Oracle, right? Meta, right? So it's the six hyperscalers, right? Who I would consider hyperscalers. The consensus for the banks is $360 billion of spend next year across all of them. And my number is closer to like 450-500. And that's based on all the research we do on data centers and tracking each individual data center, the supply chains, right? So, this is capex for the hyperscalers, right? And then capex gets split up across different companies, but the vast majority still goes to Nvidia, right? And Nvidia is in a position not where they can't take share, right? It's they grow with the market, defend share.

And so the question is like how fast is the growth rate of capex for hyperscalers and other users, right? And the reason I included Oracle and CoreWeave as hyperscalers even though they're traditionally not called hyperscalers is because they are OpenAI's hyperscaler.

So you know when you look at the Oracle announcement, right? First of all the Oracle announcement I don't understand why people don't think this is crazier. They did the most unprecedented thing in the history of stocks and public companies ever. They gave a four-year guidance. And it made Larry the richest man in the world, you know, like all these things. Anyways, the question is like how fast does revenue grow, right? Do you think OpenAI, which signed a $300 billion plus deal with Oracle, will actually be able to pay $300 billion, right, across raising capital and revenue. And I think most, and it gets to a rate of like over $80 billion, over $90 billion a year in just a handful of years, right? So it's like, do you believe the market will grow that fast? It's very possible. Yes. And it's very possible for like OpenAI, what is their revenue going to be exiting next year? Some people think 35 billion. Some people think 40 billion. Some people think 45 billion. You know ARR by the end of the year next year. This year they hit 20, right? ARR. So, if that growth rate is maintained, then all of that cost goes to compute plus all the capital they continue to raise, right? And again, their financials that they sort of gave to investors for their last round was like, hey, we're going to burn like $15 billion next year. It's probably more likely going to be like 20, but like, you know, and you stack this on and they're not turning a cash flow. They're not going to be profitable until 2029. So you sort of have like they're going to continue to burn 15, 20, $25 billion of cash each year plus revenue growth that's their compute spend and you do this for Anthropic, you do this for OpenAI, you do this for all the labs, it's very possible that the pie does get to, you know, more than 360 billion next year, 500 billion next year for total capex and the pie continues to grow for hyperscalers. Nvidia says actually it's going to be multiple trillions a year on AI infrastructure and he's going to capture a huge portion of it. That's his bull case, right? That's the bull case is AI is actually so transformative and the world just gets covered in data centers and the majority of your interactions are with AI whether it's business productivity and telling an agent to do some code or you're just talking to your AI girlfriend Annie, right? Like it doesn't matter. All of this is running on Nvidia for the most part. The bear case is, you know, even if it does grow a lot...

I guess how much do you believe in takeoffs, right? Yeah, so like if there is a takeoff scenario, right, where like powerful AI builds more powerful AI builds more powerful AI or that creates more and more, each level of intelligence enables more for the economy, right? Like how many monkeys can you employ in your business versus how many humans, right? You know, sort of the same or how many dogs, right? Like there's sort of like what is the value creation of a human versus a dog, sort of the same with AI. So like...

I mean do you even need this, I mean if you take every white collar worker make them twice as productive with AI that's in the hundreds of trillions isn't it?

Like I mean I don't know how soon if sort of white collar work is essentially useless without a constant stream of LLM tokens, right? That make him productive, right? At that point, you basically can tax every single knowledge worker in the world, right? Which is most workers in the world long term.

Cap? I mean like why aren't we making a Matrioshka brain? Like I don't know, like at some point the machine says humans don't need to live and I need even more compute.

Are we colonizing Mars yet?

I don't know man. It's, I find it like completely impossible to predict anything beyond 5 years given how much stuff is changing. Like a linear time is a large number. I'll leave them to economists, right? Like honestly, supply chain stuff is like three, four years out and that's it.

And then fifth year is like sort of like YOLO, right? So I just try and ground myself in the supply chain stuff, right? Like supply chain and then like what is the adoption of AI and what's the value creation? What's the usage like? And you can see that in a short horizon. Beyond that like I don't know, like are we all going to be connected to computers like BCIs and stuff? Like I don't know, dude. Are humanoid robots, are they going to be, you know, I mean you saw Elon's thing, right? Like he's like yeah humanoid robots are why Tesla's worth more than 10 trillion. Okay great, what is all that being trained on? Great, Nvidia, okay awesome, so that's worth also 10 trillion, right? Like I don't know, it's too out there for me. I don't like the out there discussions.

It's super awesome because, you know, they failed multiple times in the beginning and they bet the whole company multiple times, right? Like Jensen is just crazy enough to bet the whole company, right? Like whether it was certain chips, ordering volume before he knew it even worked and it was all the money he had left or ordering volumes for projects he had not won yet. Like I heard a story from someone who's a graveyard in the industry and I think would know was like, yeah, Nvidia ordered the volume for the Xbox before Microsoft gave them the order. They're just like literally he was just like, 'Fuck it. YOLO.' Right. I don't know how real true this, I'm sure there's more nuance there like verbal indication or whatever but the order was placed before he got the order is what he said. You know, there's cases like with the crypto bubbles, right? Like there was a couple of them, but Nvidia did their damn best to convince everyone in the supply chain that it wasn't crypto and that it was gaming and that it was durable, real demand and it was gaming and data center and professional visualization and therefore you guys should ramp your production. And they all ramped production and spent all this capex on increasing production and building out new lines for them and they pay per item and then they bought them and sold them and made shitloads of money and then when it all fell apart they just had to write down a quarter's worth of inventory whatever.

Everyone else was like well crap I have all these empty production lines, right? And so it's like, but what did AMD do then? Right. Their chips that were actually better for cryptomining, right? On a amount of silicon cost versus how much you hash, but they just didn't, AMD was like, ah, we're going to not really raise production, right? Like as a reasonable thing, right? It wasn't a sort of like strike while the iron's hot. And so the same has happened with Nvidia, right? They've in recent times sort of they've ordered capacity that no one believes, right? Multiple times. They see the demand obviously, but in many cases they're just like their number for Microsoft was higher than Microsoft's internal planning, right? And then Microsoft's internal planning went up, but their number for Microsoft was way higher. And it's like, ah, we just don't think Microsoft's going to need this much even though they tell us this. It's like who the heck is, like no no no customer, you're going to buy more, like orders, right? And then when the orders come through the supply chain it's like I have to pay NCNR, right? Non-cancelable, non-returnable, like this is...

You know, this is, I asked a question in Taiwan once. It was Colette which is the CFO and Jensen CEO, they were both there. And it was a room full of mostly finance bros and they were asking stupid finance questions like three days before earnings so obviously they just could not answer anything because it's like SEC regulations. But then my question to them was, look, Jensen, you're like so vibes driven and like very gut feel and like very visionary. And then Colette's, you know, CFO, she's amazing in her own right, but those personalities clash. How do you work together? And he's like, I hate spreadsheets. I don't look at them. I just know, right? Like is his response. And it's like, of course, you know that the best innovators in the world have really good gut instinct, right? And so the gut instinct to like order...

With non-cancellable orders, when you don't know, they've had to write down over their history multiple times, right? Many, many billions of dollars in cumulative orders, right? So whether it be the H20, which is more regulatory, but like other cases they've ordered and had to cancel.

It's many billions.

Well, it depends, right? The crypto writedown was like multiple billion when their stock was like less than 100 billion, right? Like it's peanuts.

I think everything you did was right and I think everything AMD did was wrong in that scenario. But it is crazy, especially in a cyclical industry like semiconductors where companies go bankrupt.

Every down cycle companies go bankrupt. I mean, if you look at from a risk-return perspective, right, these bets were totally worth taking.

Yeah. So we made one of Jensen recently and put it on social media, right? On Instagram, TikTok, XHS, Redbook, Twitter, of course. And I really liked it because he's like, the goal of playing is to win, and the reason you win is so you can play again, right? And he compared it to pinball where you just play all day and you keep getting more rounds. And his whole thing is like I want to win so I can play the next game.

And it's only about the next generation, right? It's only about now, next generation. It's not about 15 years from now because it's a whole new playing field every time or five years from now. I think you're right. The risk-reward is correct.

But there's few people take these kind of risks. It's the only semiconductor company that's worth, you know, I think even north of $10 billion, that was founded as late as it was.

Yeah. The big ones. Yeah.

Mobile, right? Like what the hell happened with mobile?

I mean obviously I'm 29. I don't freaking know what he was like. I've watched a lot of old interviews.

Yeah. Exactly. Nvidia was founded before I was born. I'm 96, right?

No, no, probably better. Even like watching old interviews, right? Like I watched a lot of old interviews, a lot of old presentations he's given. One thing is that he's just sauced up and dripped up, like the charisma he's gotten has only gotten stronger, right?

Totally agree with that. Yeah. But the man has learned to be a rockstar more even though he was always charismatic. It was like he's a complete rockstar now. And he was a rockstar a decade ago too. It's just people maybe didn't recognize it. I think the first live presentation that I watched was like CES 2014 or 2015 or whatever. It's the Consumer Electronics Show. I'm moderating gaming hardware subreddits, right? Like at the time I'm a teenager and the dude is talking only about AI. He's telling all these gamers about AlexNet and self-driving cars, right? It's like know your audience first of all, but also it has nothing to do with consumer electronics. At the time I was also half like, Holy crap, this is amazing. But I also was half like, I want you to announce new gaming GPU, right? But I know on the forums quickly everyone was like, screw this, I want to hear about the gaming GPUs. Nvidia's price gouging, of course Nvidia's always had the like we price the value and plus a little bit, right? Because we're just smart enough to know. I'm guessing Jensen just has the gut feel of how to price things, right? He'll change the price at least on gaming watches, he'll change the price up until right before the presentation.

So it really is a gut feel thing probably. And anyway, he had that charisma to know what was right, but I think a lot of people were like, Oh, no, whatever. Jensen's wrong. He doesn't know what he's talking about. But now he talks and people are like, Oh, very, very, you know. So it might just be that he's been right enough.

Who's the other gods?

Elon.

Nice. Nice. Okay.

Exactly. Just on one more one last thing on people, you mentioned Colette, his CFO. And there's sort of a famously loyal crew at Nvidia even though all of the OGs could retire at this point. Is there anyone akin to a Gwynne Shotwell at SpaceX or previously a Tim Cook to Steve Jobs at Apple that is at Nvidia today?

I mean, he had two co-founders, right? Let's not overlook that. One of them's not involved and hasn't been for a long time, but the other one was involved up until just a few years ago, right? So it's not just Jensen running the show, right? Although he was running the show. There's quite a few people on the hardware side. There's someone at Nvidia that's like mythical to me. Like when you talk to the engineering teams, he leads a lot of the engineering teams. He is a private person so I don't want to say his name actually.

But he's effectively like chief engineering officer is his role. And people within his org will know who he is. And I think there are people like that. But he's intensely loyal and there's a number of these types of people. There's another fella who's like, there's all these innovative ideas at Nvidia and he's the guy who literally is like we need to get this silicon out now. We're cutting features. And that's what he's famously known for. And all the technologists in Nvidia hate him. This is a second guy. There's a second guy also intensely loyal to Nvidia. Has been around for a long time. But it's like, when you have such a visionary company, one problem is that you get lost in the sauce, right? Oh, I want to make this. It's got to be perfect, amazing. It's like, you got to have that sort of like and these people are like, obviously they're close to Jensen for a reason because Jensen also believes like these things, right? Have the visionary future looking, but also like screw it, cut it, we'll put in the next one, ship, right? Like ship now, ship faster, in a space like silicon, which is really hard to do.

And the thing about Nvidia that's always been super impressive and it's from the beginning days, right? He's talked about this before is their first chip, their first successful chip, they were going to run out of money and he had to go get money from other people to even finish the development and even then he just had enough money because he'd already had a failed chip before this. The chip came back and it had to work otherwise it would not, you know, and so they were like because they could only pay for it's called a mask set, right? Basically you put these stencils into the lithography tool and then it says where the patterns are and you put the stencil in, you deposit stuff, you etch stuff, you deposit materials on the way for etch it away. And you put the stencil in and you tell it where to put stuff, right? And then the deposition and etch keeps happening in those spots and you stack dozens of layers on top of each other and you make them a chip. These stencils are custom to each chip, right? And they cost today in the orders of tens and tens of billions of dollars. But even back then it was still a lot of money. It wasn't that much then, of course. He could they could only pay for one set. But the typical thing with semiconductor manufacturing is, as good as you can simulate, as good as you can do all the verification, you'll send a design in and you have to change it. There's going to be something. It's so hard to simulate everything perfectly. And the thing about Nvidia is they tend to just get it right the first time.

Even great executing companies like AMD or Broadcom or whoever, they often have to ship, you know, they're denoted in like A and then a number or B and then a number. So it's like two different parts of the masks. So Nvidia always ships a zero almost always. They sometimes ship A1. And a lot of times even if they'll start production of the A is basically the transistor layer then the number is like the wiring that connects all the transistors together. So Nvidia will start production of the A and ramp it really high and then just hold it right before you transition to the metal just in case they do need to change the metal layers. And so the moment they're ready and they've confirmed that it works, they can just blast through a lot of production whereas everyone else is like, Oh, let's get the chip back. Okay, a Z doesn't work. We got to make this tweak. Make this tweak. Get the chip back. It's called a stepping, right?

E2 like it's like a 15 revision. This is the peak of AMD's market share when they went skyrocketing versus Intel was when Intel was at E2, right? Like 15 stepping.

Yeah. Each time is a quarter of delay or something, right? Yeah. So it's absurd. So, I think that's the other thing about Nvidia is like, screw it, let's ship it, let's get the volume ASAP. Let's do these things that, and so anyways, they have some of the best simulation, verification, etc. that lets them sort of go from idea to shipment as fast as possible, cutting out any unnecessary features that could delay it, making sure they don't have to do revisions so that they can respond to the market ASAP. There's a story about how Volta which was the first Nvidia chip with tensor cores, they saw all the AI stuff on the prior generation P100 Pascal and they decided we should go all in on AI and they added the tensor cores to Volta like only a handful of months before they sent it to the fab like they said screw it let's change it and it's crazy.

Yeah, I love that point because you think of Nvidia benefiting from tailwind after tailwind, but I think both of you are saying you got to move fast enough and execute well enough and take advantage of those tailwinds.

It's really a question of and this is like I think every time I've talked to some executives at Nvidia have asked this question because I really want to know and they won't answer it obviously but it's like what are you going to do with your balance sheet like you are the most high cash flow company in like you have so much cash flow. Now the hyperscalers are all taking their cash flow way down, right? Because they're expending on GPUs. What are you going to do with all this cash flow? Right? Even before this whole takeoff, he wasn't allowed to buy ARM, right? So what can he do with all this capital and all this cash, right? Even this $5 billion investment in Intel is subject to regulatory scrutiny there, right? Like it's in the announcement like yeah, this is subject to review, right? I imagine that'll get passed, but he can't buy anything big. He's going to have hundreds of billions of dollars of cash on his balance sheet. What do you do? Is it start to build AI infrastructure and data centers? Maybe. But why would you do that if you can just get other people to do it? And just take the cash.

Investing peanuts, right? He gave recently like a core a backstop because today it's really hard to find a large number of GPUs for burst capacity, right? Like hey I want to train a model for three months, right? I have my base capacity where I don't know all my experiments but I want to train a big model three months done.

Yeah. So Nvidia sees this issue they think it's a real problem with startups it's why the labs have such an advantage but what if I could, right now most companies in the Valley spend what 75% of their round on GPUs, right? Or at least with CD.

He has been investing up and down the supply chain a little bit though, right? Investing in the neoclouds, investing in some of the model training companies.

Do you think these are things he should be doing which I mean like yeah good question.