Nvidia and AMD are companies that create graphics cards, processors, and some other components for computers. Graphics cards have come to the forefront of the “Third Industrial Revolution’ because they do the calculations that make machine learning possible. In this context, Nvidia is the gold standard, and AMD is like silver.
AMD also make CPU, like Intel, with their line of processors called Ryzen. Never heard of it? Does that make it undervalued, or worthless? You’ve probably heard of Nvidia because that’s what’s in your computer if you have an Apple or Windows GPU. In some cases AMD is equivalent in performance, or better. Certainly, many people consider AMD a better value.
All speculations aside about the differences in the difference between the inherent and perceived value of AMD and Nvidia’s components, let’s talk about the vale of what they are making.
Theoretical Underpinnings of Bullish Sentiment for GPU Market
So let’s get specific about why GPUs are important in the economy today. What sorts of products are they necessary for? To understand this, a good example is the screen that you are looking at. Each one of the pixels that you see in front of you has to be controlled, and a graphics card transmits this information as an instruction onto the screen.
In a graphics card, each core can do a simple calculation, such as controlling a pixel on a screen or performing a mathematical calculation. The beauty and power from these components (GPU) comes from the way that they work together to perform a greater, and often times extremely complex, task.
This is much different than a CPU. Consider that, at the low end, an Nvidia GPU will have at least a thousand cores. Compare that to the latest highest end Intel $7k CPU, which has only 24 cores. CPU cores can do many more different things than the cores of GPUs, but because GPU cores are more specialized they can be more quickly or efficient, and there can be more of them used by the computer successfully.
Now that it’s clear what a GPU is, let’s talk about the applications for the hardware. GPUs are necessary for machine learning, augmented reality, virtual reality, gaming (e-sports), and cryptographic calculations (crypto mining). Let’s break down the value a little more.
Artificial Intelligence, Gaming, & AR/VR in the Workplace
How does breaking down the limits of time and space to tell the future sound? What about abating the risks of superbugs like Covid 19 while maintaining close connections. As in, having a group of co-workers in your living room, and being in their living room, while also being on the plant floor. All this happening while cloud infrastructure is pushing gaming powered by the same GPU’s that are making this possible. Therefore, behemoths are spreading the cost of super-powered (and super profitable?) chips across the population and increasing investment into GPUs. Add 5G into the equation and it looks like investment into GPUs will increase, even as the cost to consumer increases, but probably through a subscription service.
What are the risks, though, especially in the short-term? How do we know that these stocks will go up in the short-term, especially in a hyper-globalized JIT world with fragile supply chains. So what if China got a hold on the new corona virus and they’re ramping production back up if the supply chain has kinks in other places in the world with no backup plan. Are supply chains too fallible at the expense of cutting expenses? There are some new risks that need to be integrated into the supply chain from corona virus or other low probability catastrophic events. These are real risks, especially because in Nvidia’s most recent report they state:
“We do not directly manufacture semiconductors used for our products. Instead, we utilize a fabless manufacturing strategy, whereby we employ world-class suppliers for all phases of the manufacturing process, including wafer fabrication, assembly, testing, and packaging. This strategy uses the expertise of industry-leading suppliers that are certified by the International Organization for Standardization in such areas as fabrication, assembly, quality control and assurance, reliability, and testing. Additionally, we can avoid many of the significant costs and risks associated with owning and operating manufacturing operations. While we may directly procure certain raw materials used in the production of our products, such as substrates and a variety of components, our suppliers are responsible for procurement of the majority of the raw materials used in the production of our products. As a result, we can focus our resources on product design, additional quality assurance, marketing, and customer support.”
Are we in survival mode, or is it time to find real(ly awesome) solutions? Nvidia has exposure to AI, gaming, VR/AR, driverless cars, and bitcoin. I believe that it is a good bet in the corona economy because remote work is more important, and fiat currency may lose value with unemployment insurance in some cases SIGNIFICANTLY exceeding income from jobs. Will employers find automation solutions previously thought too expensive attractive as workers gain market power and demand wages in excess of what seems to be the emergence of a Universal Basic Income?
Will a check from the government, in fact, solidify income expectations, as opposed to the current belief that job loss will shake consumer confidence, resulting in similar or even increased momentum of money? Inflation could be on the horizon, and one place I would rather not be is in cash because inflation obviously devalues cash. Bitcoin may be a good short-term solution, and Nvidia provides that exposure as well because their equipment can be used to mine the cryptocurrency.
Moreover, with most of it’s supply chain in Asia, where governments have a more tyrannic hold, resulting in ability to quarantine citizens under threat of fines or worse, the supply chain may be surprisingly resilient (that’s the important thing: surprise). Supply chains may not be as nimble as previously thought, but supply is not thought to be the problem. Demand is, and governments are taking care of that by putting money in the hands of people out of work with nothing to do but play video games or work on hobby projects. This, however, is where AMD takes the stage.
AMD’s graphics cards are cheaper than Nvidia’s, but have similar or in some cases better performance, especially when it comes to tasks that don’t require perfect calculations, such as gaming computers. For people working on hobby projects with uncertainty about future income, they might choose AMD over Nvidia to cut costs, as they dabble in their garage building that computer that’s been sitting there for years while they trudged to and from work. While Nvidia’s cards are preferred for industrial applications like AI or AR/VR for Microsoft’s HoloLens, hobbyists will prefer AMD’s GPUs and associated CPUs. The bottom line is these people are going to have to do something while they are cooped up in the house, and people love video games.
However, my bet, and I agree with analysts that Nvidia is better positioned to benefit from the Corona economy, is that we are even going to see increased government investment into a way to leverage technology to make remote work less remote. Increasing innovation in the remote work, remote education, remove everything is now a matter of national security. The technology is increasingly here (5G, AI), but the reason to switch has not been evident until we entered the Coronavirus economy.
The company that most stands to benefit from this hype is Nvidia, but AMD may post strong numbers in the face of a shitty economy.