Arguably, the biggest story this past week was NVIDIA Corporation’s (NVDA) most recent earnings report. While it was true the economic calendar was pretty light, investors were anxious to see how the company fared last quarter. In case you haven’t been following the stock, it has been on a tear. Surely, NVDA couldn’t keep up its torrid pace of growth.
Or could it?
Not so long ago, few people outside of the investment industry had even heard of the firm. Even within it, many analysts would have struggled, mightily, to tell you exactly what the company did in layman’s language. To be sure, NVDA’s business model isn’t the topic of the typical tailgate.
Try this snippet from the company’s presentation deck on its website:
“Our fourth-generation NVIDIA DGX system is the world’s first AI platform to be built with the new H100 GPUs. Each DGX H100 provides 32 petaflops of AI performance at FP* precision – 6X more than the prior generation. The next-generation DGX SuperPOD will expand the frontiers of AI with the ability to run massive workloads with trillions of parameters.”
When I was in college, this would have been some serious date repellant. However, most things I said seemed to be date repellant, regardless of topic. Do you want to know what isn’t? Co-founder and CEO Jensen Huang’s estimated net worth of $69.2 billion.
That stack of bills will get a lot of people to return a text.
As for last quarter, NVDA basically crushed it, again, and the stock soared in trading on Thursday. This presents something of a conundrum for institutional investors. After such an eye-popping run, do you add to your exposure or lock in some gains?
However, all appearances to the contrary, this week’s commentary isn’t about the company itself. It is about what it does or facilitates: artificial intelligence (AI). It doesn’t matter if you don’t understand the science, because extremely few people do. However, AI seems to be on everyone’s minds and lips.
Not surprisingly, people worry about its impact on the labor markets. More specifically, they worry about its impact on their job. After all, the headlines have been the stuff of so much science fiction. Shoot, I read an article about how AI was going to eventually lead to the extinction of our species.
That seems a bit dark, doesn’t it. But what of AI’s impact on the labor markets?
First off, one of the hardest things for people to appreciate is they are fungible, with a few possible exceptions. You don’t need some tech wizard in California to produce a chip or software program to make it thus.
Second, while the explosive growth in AI has been impressive, advancements in technology have always threatened the status quo. It doesn’t have to be some hard to explain GPU which has 32 petaflops of performance at FP8 precision. There currently exists ample technology to replace the vast majority of American workers.
Think about it, and think about the jobs which have essentially vanished over the last several decades. Telephone operators? The typing pool? Typesetter? All those jobs at video rental stores? Record and camera shops (for the most part)? Anyone else remember the Kodak film developing kiosks? When was the last time you sent a fax, honestly? Well, someone had to make those things.
Now, what about those which are on life support? The list here is almost endless thanks to the relative disposable nature of much we consume, the ease with which we can buy it online and changes in consumer spending patterns. There is less of a need to go to the TV repairman, department store, dry cleaner or even, shudder, bank.
That reduces the need for full-time employers.
Since the dawn of the Industrial Revolution, primarily, frequent changes in how we live our lives and conduct business have disrupted countless lives. They have led to the loss of jobs and even entire industries. The tractor? Combine harvester? Spinning jenny? Cell phone? Automobile? Internal combustion engine? Telephone? Tank, yes, tank? Airplane? The interstate highway system? Big box retailers? The Internet?
Think about that last one, the Internet. Imagine trying to explain it to, say, your great-grandparents or even your grandparents. Tell me they wouldn’t consider it science fiction or even, dare I say, artificial intelligence. What about smartphones and the algorithms apps used to track our behavior in order to make purchasing suggestions? How do they know?
The point of this is simple. There have always been advancements in technology which have scared the heck out of us, at least most of us. Despite its inevitability, people dislike change. Further, for as much as people wax nostalgic about the so-called ‘good old days,’ how many would really like to return to them? At least for good?
Basically, while people tend to dislike change and are scared of technological advancements, they tend to like the benefits.
So, as for what we are calling artificial intelligence these days, and it IS as close as we have ever gotten to it, yes, it will displace a lot of people and kill a lot of jobs. Folks will find out about their own fungibility, and they won’t like it one little bit. People will take to their social media outlets screaming something has to be done about it. It’s unfair and all a means for money-grubbing companies to maximize their profits. AI is out to ruin the common man!
You know what? AI will throttle the proverbial common man, because they are less likely to anticipate and accept the changes life foists upon them. They will be slow to adapt and manipulate AI for their own advantage. They will view it as a threat, as opposed to a means to greatly expand their capacity, and push back on it. A self-fulfilling death spiral, if you will.
As British Prime Minister Harold Wilson once said, and I don’t quote him often:
“He who rejects change is the architect of decay. The only human institution which rejects progress is the cemetery.”
In closing, AI is here to stay. NVIDIA is simply the current posterchild for it. Other companies are rapidly developing their own technologies, even if they don’t get as much ink. However, you might be able to argue AI has been with us for a long period of time. Perhaps ‘accelerated computing’ is a better way of describing what is happening now.
Even so, when all is said and done, will NVDA, GOOG, MSFT, APPL and others ever be able to develop a way to make a better cheesecake than the ‘dulce y leche’ one my wife got last weekend? That is without any sort of human involvement in the supply chain, kitchen, delivery or any other point in the process? While there are some who would say, emphatically, yes! That is the endgame! They would be wrong.
After all, someone has to be around to eat it. The last I checked, my computer doesn’t have the means to do so, and probably wouldn’t like it in any event. Even NVDA can’t make a chip or platform which would change that. What would be the point?
Have a great weekend.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this any every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
John Norris
Chief Economist
Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as well as those of our Investment Committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.