The financial press has had a field day in discussing the depreciation risk associated with high end NVIDIA GPU chips. However, lurking beneath the surface is the risk of economic obsolescence. That risk will come from the availability of lower cost chips such as the Google Tensor processor. Moreover, additional competition will come from Amazon and Elon Musk who are developing their own chip sets.
The arithmetic is simple. A high-end NVIDIA GPU chip set
costs about $60,000 of that $43,800 represents NVIDIA’s extraordinarily high
73% gross margin. In this example NVIDIA’s cost is $16,200. Herein lies the
risk. Lower cost chips produced, at say a more normal, but still high 60% gross
margin would yield a price of $40,500. Thus, AI competitors using the newer
chips would have a significant 1/3 cost advantage thereby rendering the
existing NVIDIA chips economically obsolete. In a way NVIDIA could very well
become a victim of its own success.
To be sure, NVIDIA is a technological behemoth, and it
has its CUDA software to lock in existing customers. Nevertheless, the mere
existence of a 73% gross margin will ultimately bring price competition into
the GPU landscape.
