The risks to Nvidia's $4.5 trillion empire

Fortune

Nvidia is shaping the demand for its own chips—but the risks that come with it could topple the company's $4.5 trillion empire.  For the latest issue of Fortune magazine, Senior Editor-at-Large Shawn Tully explored Nvidia and Jensen Huang's strategy for driving the chip giant's growth to massive heights.

Transcript

00:00NVIDIA is the first $5 trillion company in history.

00:03The question is, can it continue to generate these huge monopoly margins that it's had in the past?

00:08And that's really open to question.

00:10NVIDIA's big weakness could be the effort that it's making to prop up and create a whole new class of customers

00:17that have to take on gigantic amounts of debt to keep buying its GPUs.

00:22OpenAI and CoreWeave are two of these chosen new customers.

00:26The problem that these new customers have, specifically CoreWeave and OpenAI,

00:31is that unlike a Microsoft or an Amazon, they're losing tons of money right now.

00:35So the question is, how are they going to borrow all this money?

00:38How are they going to pay it back?

00:39And how are they going to then be long-term customers for NVIDIA?

00:42The financing of data centers is fairly complex.

00:46Real estate companies build the shells of these data centers.

00:49Then they get filled up by the hyperscalers that buy the chips that go into the data centers.

00:54If the demand for AI services, such as ChatGPT, go way down,

00:59then this space is going to go unrented after a while.

01:02No one's going to have to use those chips anymore.

01:05The chips secure the loans.

01:07Therefore, the lenders take back the chips, throw them out onto the market.

01:11You have a surplus of chips on the market.

01:13The developers, the companies that built them,

01:17have taken out big real estate loans to build these gigantic data factories,

01:22and they can't pay the banks back.

01:23Fortunately, NVIDIA makes tons of money today.

01:26The problem is, can it continue to generate those huge margins going forward?

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