Nvidia: Profiting from the AI Gold Rush – A Lesson in Selling Shovels

“During a gold rush, sell shovels”

One of the select few firms whose ability to capture the value of AI is already clear as day is GPU manufacturer Nvidia. As the leading supplier of the computing required to train AI models (for example, those by OpenAI), Nvidia has achieved conspicuous revenue growth in the past year, mainly driven by the eagerness of companies to acquire GPUs so as not to fall between the cracks of the AI rage. In late May, Nvidia said it expects revenue of $11bn in the second quarter of 2023, far surpassing the average analyst forecast of $7.18bn. This AI hoarding has sent Nvidia past the $1tn valuation mark, alongside only five other firms, quadrupling its stock price since its 1-year low in October 2022. The $750bn expansion to Nvidia’s $250bn market capitalisation less than 12 months ago is a clear reminder that AI is a speculative market, by which the imagination of investors has persuaded them that something truly great lies ahead.

The story of Nvidia points to the adage that “during a gold rush, sell shovels”. This suggests that it’s more profitable to provide the required infrastructure to those pursuing a booming trend than to pursue the craze itself. In the crypto rush of 2021, Coinbase profited heavily by selling picks and shovels by facilitating crypto trading, similar to Nvidia now. In due time, the crypto bubble burst, shortening Coinbase’s revenue markedly and bringing an up to 90% drop in its stock price in a single year. Time will tell whether Nvidia is in an everlasting gold rush or will follow Coinbase’s “the higher you climb, the harder you fall” tale.

 

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