AI for Dummies: An Investor's Guide to NVIDIA and Artificial Intelligence

A few weeks ago, following Nvidia’s insane result, I sent an internal email to Fat Tail Investment Research’s tech analysts asking: Is Nvidia eating the world?

Here it is…

Everyone knows about Nvidia’s result. It was insane. 65% gross margin, 90% ROE with huge net cash balance. It’s a bubble on the chart, but looks ok on valuation. Crazy.

I have two related questions…

A good chunk of the Nvidia’s revenues come from the cap ex of the other tech giants. What is their appetite to keep spending at such a rate and what do you think their return on investment will be from this cap ex? They all already have high returns on capital…will this AI race diminish this in the short-term?

Is the surge in demand for Nvidia’s chips a one-off step-change, with growth to settle at a more sustainable rate in the coming quarters, or is this a new market that EVERYONE feels like they have to play in, no matter what the cost? And if that is the case, again, what does that do to the return on invested capital (ROIC) of these companies?

In the early days of this AI boom, I made the mistake of just assuming capitalism will work its magic on Nvidia’s margins and high profitability. That is, competitors will come in and take market share and profits off them.

What I didn’t realise is just how entrenched Nvidia is, and how much of a head start it has in this new world of AI.

In fact, there are a lot of things I don’t know about this unfolding tech boom, and the world of AI in particular. But I do know enough — just enough — to ask the right questions of those who know a lot more than me.

So I recently recorded an ‘AI for Dummies’ interview with our tech gurus Ryan Dinse and Charlie Ormond. I consider myself an AI dummy, so I ask plenty of basic questions about the technology and what it all means for investors/speculators in the space.

The traditional mindset has been to think this is just another tech bubble that will blow up and burst. But having such a closed mindset is, I think, a mistake.

Think of the unfolding AI infrastructure as a new railway boom. Everyone is racing to lay down new tracks. There will be overinvestment. There will be losses. But it will also usher in a new way of doing things and greater efficiencies.

If you’re interested in getting the basics of this story, I encourage you to watch the video below. And if you’re interested in receiving daily insights like this across a range of different sectors (not just tech) I invite you to sign up to our free daily email, the Fat Tail Daily.