Mr. Musk has accomplished something that few people can.
Few people elicit reactions as strong as Elon Musk. Tesla’s outspoken founder likes to make bold claims and big promises, but those promises aren’t always kept, much to the chagrin of Tesla investors. Add to that his social media activity, and he’s an often divisive figure.
One thing that cannot be denied is that Musk has a vision. Because of that, and because of his huge net worth, he is able to leverage his vast resources to accomplish incredible work. Look no further than his company SpaceX’s recent successful “capture” of a rocket booster. While this is a truly amazing feat, Musk recently accomplished something else that left Nvidia behind. (NVDA 0.80%) CEO Jensen Huang was very impressed.
Musk built one of the world’s fastest supercomputers
While X, Tesla and SpaceX dominate the headlines, Musk Artificial intelligence (AI) startupxAI recently built what could be the most powerful AI training supercomputer. The supercomputer, dubbed “Colossus,” will be used to train Grok, a large-scale language model (LLM) and the company’s answer to ChatGPT. LLM will initially be available to paying customers of Company X, but many believe that Grok will eventually make its way into Tesla’s humanoid robots. Sounds like science fiction, right? it’s not.
The problem here is that even though xAI built the facility in a few months, they installed 100,000 Nvidia H100s in just 19 days. The head of Nvidia was recently interviewed about the installation and said it was clearly unlike anything he had ever seen before, calling it “superhuman” and “unbelievable.” why? Huang said this is a process that normally takes years.
But Musk isn’t done there. We plan to install an additional 50,000 H200s in the coming months, roughly doubling our current output. Nothing has been officially announced, but I wouldn’t be surprised if he leads NVIDIA’s unreleased B200. xAI has spent billions of dollars on the project so far, $25,000 a pop, with an estimated $2.5 billion of that spent on the H100 chip itself.
The accomplishments of Mr. Musk and xAI are undoubtedly impressive, but I would like to take Mr. Hwang’s remarks with a grain of salt. CEOs of companies that collaborate on multibillion-dollar businesses tend to be highly complimentary of each other, and like Mr. Musk, Mr. Huang is not afraid to make bold claims.
This is great news for Nvidia
The entire project shows the incredible lengths companies will go to to win the AI arms race – companies with billions of dollars to burn. In the final round of quarterly earnings, CEOs of the tech industry’s biggest companies reiterated that losing is not an option and they will continue to do whatever it takes to win. Alphabet CEO Sundar Pichai said bluntly: “For us, the risk of underinvestment is dramatically greater than the risk of overinvestment.” To that end, the company expects to spend about $50 billion in capital spending this year, up from $31 billion last year, much of it going to AI infrastructure and Nvidia chips.
As mentioned earlier, Nvidia is gearing up to launch the latest version of its flagship AI chip, Blackwell. Despite the fact that it hasn’t hit the market yet, it’s reportedly been sold out for at least a year, and demand for the company’s current chips is still very high, as seen with Colossus.
Nvidia faces competition. AMD is scheduled to release its latest chip, the MI325X, this quarter, but it has yet to eat into Nvidia’s market share in a meaningful way. AMD is currently about a year behind Nvidia, as MI325X competes with H200 rather than B200. And given that Nvidia can spend about twice as much as AMD on R&D, it’s unlikely to close the gap anytime soon.
Nvidia’s moat is pretty wide right now, and I don’t see any reason for it to change next year. However, the company’s stock is trading at an all-time high and is currently Price earnings ratio (PER) That’s a hefty premium. If you’re a risk-averse investor, say you might be nearing retirement, I’d be careful. But overall, I think Nvidia’s current valuation is justified given the growth it will see over the next few years.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Johnny Rice has no position in any stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
