Moreover, the company is pursuing a similarly audacious strategy in the data center and with its metaverse ambitions as well: in all three cases the company is pursuing heights even greater than those achieved over the last two years, but the path is surprisingly uncertain. What was striking about Nvidia’s GTC keynote last week was the extent to which this allegory seems to fit Nvidia’s ambitions: the company is setting off on what appears to be a fairly solitary journey to define the future of gaming, and it’s not clear when or if the rest of the industry will come along. The prophet Jeremiah describes it as, “A wilderness, a land of deserts and of pits, a land of drought and of the shadow of death, a land that no man” (except a Christian) “passes through, and where no man dwells.” Now this valley was a very solitary and lonely place. Now at the end of this valley there was another called the Valley of the Shadow of Death and it was necessary for Christian to pass through it because the way to the Celestial City was in that direction. Ĭall Apollyon inventory issues Christian defeated him, as Nvidia eventually will. Now Christian had not gone far in this Valley of Humiliation before he was severely tested, for he noticed a very foul fiend coming over the field to meet him his name was Apollyon. I’m reminded of John Bunyan’s Pilgrim’s Progress:
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What is more concerning for Nvidia, though, is that while its inventory and Ethereum issues are the biggest drivers of its “fairly horrific quarters”, that is not the only valley its gaming business is navigating.
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This may be a bit generous analysts like Tae Kim and Doug O’Laughlin forecast the stock plunge earlier this year, although that was probably already too late to avoid this perfect storm of slowing PC sales and Ethereum’s transition, given that Nvidia ordered all of those extra 3000-series GPUs in the middle of the pandemic (Huang also cited the increasing lead times for chips as a big reason why Nvidia got this so wrong). But I think in the grand scheme of things, we’ll come right back so I think that was probably the lessons from the past. I think we took care of as many things as we could, it resulted in two fairly horrific quarters. By delaying Ada, we made sure that everybody had plenty of time for and we repriced all the products such that even in the context of Ada, even if Ada were available, the products that after it’s been repriced is actually a really good value. We took care of our partners, we took care of our channel, we took care of making sure that everybody had plenty of time. But when the facts presented itself, we just made cold, hard decisions. We just have to deal with it and not be overly emotional about it, realize how it happened, keep the company as agile as possible. I don’t think I would’ve done anything different, but what I did learn from previous examples is that when it finally happens to you, just take the hard medicine and get it behind you…We’ve had two bad quarters and two bad quarters in the context of a company, it’s frustrating for all the investors, it’s difficult on all the employees. Nvidia CEO Jensen Huang told me in a Stratechery Interview last week that the company didn’t see this coming:
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Needless to say, too much new inventory plus too much used inventory is terrible for a company’s financial results, particularly when you’re trying to clear the channel for a new series: This is particularly bad timing for Nvidia given that the pandemic buying spree ended just as the company’s attempt to catch up on demand for its 3000-series of chips were coming to fruition. mine - Ether.Ĭrypto isn’t so much a valley as it is a cliff: Ethereum successfully transitioned to a proof-of-stake model, rendering entire mining operations, built with thousands of Nvidia GPUs, worthless overnight given that Bitcoin, the other major crypto network to use proof-of-work, is almost exclusively mined on custom-designed chips, all of those old GPUs are flooding the second-hand market.
Three big things happened to Nvidia’s business over the last three years that drove the price to unprecedented heights: This chart, though, is not from the last two years, but rather from the beginning of 2017 to the beginning of 2019 here is 2017 to today: Nvidia investors have been in the valley before:
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