We are in a Strategic Inflection Point … have you got that?

I’m sure you’ve all noticed that artificial intelligence (AI) is the big news of the last year, but have you been watching Nvidia, the chip maker that drives AI? It’s now bigger than Intel and about to exceed Microsoft and Apple in market valuation. Here’s an analyst’s view from Barrons:

Nvidia Has More Than Doubled This Year. How To Know When To Sell by Tae Kim

Nvidia is now the second-best performing stock in the S&P 500—up 148% this year … over the last few months, the fundamentals behind the AI boom have only gotten better. In May, Nvidia posted eye-watering sales growth of 262% for its fiscal first quarter and earnings growth of 461% versus the prior year. Nvidia’s valuation is about 35 times 2025 consensus earnings, according to FactSet. That’s not crazy given that sales are forecast to grow 37% for the time period. Meanwhile, the industry backdrop for Nvidia keeps improving. This past week, JP Morgan published survey results from 166 chief information officers, or CIOs, who are responsible for $123 billion in annual enterprise tech spending. The survey suggested that generative AI hardware spending could rise by more than 40% annually over the next three years, going from 5% of IT budgets this year to 14.5% in 2027.

It's that last line that got me. AI is hot, hot, hot, and Nvidia – as the driver of AI – is even hotter. Tae Kim observes a further insight:

Companies are reworking their computing infrastructure from a traditional model of information and file retrieval to the new generative AI approach where answers and insights are generated on demand. In a competitive landscape, companies have no choice but to make that move.

In other words companies are restructuring their business and operations around AI, with Nvidia a core of that process. The question some people haven’t thought about is: what is Nvidia and how did they beat Intel?

The GPU designer finished its 2024 fiscal year with $60.9 billion in revenue, up 126 percent or more than double from the previous year, the company revealed in its fourth-quarter earnings report on Wednesday. This fiscal year ran from Jan. 30, 2023, to Jan. 28, 2024. Meanwhile, Intel finished its 2023 fiscal year with $54.2 billion in sales, down 14 percent from the previous year. This fiscal year ran concurrent to the calendar year, from January to December … Nvidia pulled off this feat because the company had spent years building a comprehensive and integrated stack of chips, systems, software and services for accelerated computing—with a major emphasis on data centres, cloud computing and edge computing—then found itself at the centre of a massive demand cycle due to hype around generative AI.

Pretty cool, huh?

The thing that gets me is, looking at Nvidia’s website, that they are doing some real leading-edge stuff. For example, they’ve build another planet Earth. A virtual one. They’ve built the 3D internet or, as we like to call it, the metaverse net. They are the power behind robots and self-driving vehicles.

In fact it’s far more than a graphics and chip company. It’s a driving force for the future.

“Nothing makes me prouder than the incredible people who have made NVIDIA the company it is today. Together, we continue to drive advances in AI, HPC, gaming, creative design, autonomous vehicles, and robotics.” Jensen Huang, co-founder, president and CEO of Nvidia, the third largest company in the world by market capitalisation.

What gets me in all of this is that I once met Andrew Grove, the founder of Intel, and he signed his book Only the Paranoid Survive for me. What was that book all about? Well, for those who are younger, here’s the summary:

There are moments in any business when massive change occurs, when all the rules shift fast and forever. They can make or break companies and individuals, and they can happen at any moment. Andrew Grove calls such moments strategic inflection points, and he lived through several as CEO of Intel, where he transformed the company into the world's largest computer chipmaker, and the 7th most profitable company in the Fortune 500. Drawing on decades of personal experience and insight, as well as examining timeless examples from other companies, Grove reveals how to identify and exploit the key moments of change that generate either drastic failure or incredible success.

That book got a strong endorsement from someone called Steve Jobs, who was quite an important guy back in the day (google it if you’re too young).

“This book is about one super-important concept. You must about 'Strategic Inflection Points', because sooner or later you are going to live through one”.

We are living through a Strategic Inflection Point. Have you got that?

 

Postscript: any doubts about this strategic inflection point? Listen to Reid Hoffman, one of the most influential technologists in the world, on the McKinsey podcast. Silicon Valley pioneer Reid Hoffman explains why we should view generative AI as a “steam engine of the mind” that promises to profoundly alter our professional and personal lives ... and then there's this: