Elon Musk Offers Nvidia Shareholders a Billion-Dollar Motivation to Celebrate
Two names frequently making news are Elon Musk and Nvidia (NVDA, -1.67%). They frequently grab headlines, but it's uncommon to see them together.
However, a report by DigiTimes on Dec. 2 suggested that Musk's AI startup, xAI, entered into a significant agreement with Nvidia.
I'll delve into the details and discuss how a partnership between xAI and Nvidia could be a major catalyst for the semiconductor giant.
What's Musk up to now?
The most vital piece of infrastructure for generative AI development is the graphics processing unit (GPU). GPUs are advanced chipsets that run complex algorithms at blazing-fast speeds, 24/7.
Nvidia reportedly holds an astounding 88% of the GPU market, leading the pack in this sector. Their GPUs are utilized by many of the world's largest companies, such as Microsoft, Amazon, Alphabet, Meta Platforms, and Musk's electric vehicle firm, Tesla.
According to DigiTimes, Musk reportedly engaged in discussions with Nvidia CEO Jensen Huang, offering over $1 billion for a cluster of GB200 GPUs.
Why this deal is crucial
In relation to xAI, Musk shared some exciting news on X (formerly Twitter) in September.
The @xAI team brought our Colossus 100k H100 training cluster online this weekend. It took 122 days from start to finish. Colossus is currently the most powerful AI training system globally. It will grow to 200k (50k H200s) soon. Impressive...
-- Elon Musk (@elonmusk) September 2, 2024
xAI is already collaborating with Nvidia, specifically on the development of its supercomputer, Colossus. Additionally, Musk hinted that xAI will be investing more in AI infrastructure soon.
Given xAI's decision to bypass Oracle earlier this year, Nvidia has an excellent opportunity to continue working alongside xAI, underscored by the new GB200 deal.
Dan Ives of Wedbush Securities is a renowned technology analyst. Ives recently stated on social media that he expects over $1 trillion of AI infrastructure investment over the next three years.
Considering Nvidia's presence in the AI infrastructure market, it's plausible that the company will capture a significant portion of this additional capital expenditure (capex). However, this may not continue indefinitely.
Should I buy Nvidia stock?
Despite Nvidia's leadership in the GPU market, stiff competition from Advanced Micro Devices and internal pressure from its customers to provide lower-cost alternatives may limit its growth potential.
As I've mentioned earlier, I believe Nvidia will continue to support the broader AI narrative for several years to come. However, as alternative GPUs emerge, Nvidia's ability to stay competitive could become challenging. Effectively, GPUs are likely to become commoditized, and Nvidia might need to adapt to these market dynamics. Bigger deals with captivating AI businesses are currently uncommon but not necessarily unsustainable.
In conclusion, Musk's decision to rely on Nvidia's GPUs for xAI's computational needs undoubtedly highlights the quality of the company's offerings. While I'm optimistic about the relationship between xAI and Nvidia, this deal alone does not justify buying Nvidia stock. Even though Nvidia is strategically positioned to capture growing market share in AI infrastructure, I remain cautious about its long-term prospects.
The partnership between Elon Musk's AI startup, xAI, and Nvidia, as reported by DigiTimes, involves a significant agreement that could be beneficial for both parties. In light of this, Musk has expressed intentions to invest more in AI infrastructure soon.
Given Nvidia's dominance in the GPU market with an impressive 88% share, the potential for over $1 trillion of AI infrastructure investment over the next three years, as predicted by Dan Ives of Wedbush Securities, presents a significant opportunity for the company to capture a substantial portion of this additional capital expenditure (capex).
