Hologram of a person's brain over a semiconductor -- concept for AI.

Nvidia Stock Investors Should Love What Elon Musk Said About Tesla’s AI Earnings Call | The motley fool

Last week, pioneer of electric vehicles Tesla (TSLA -1.21%) delivered a second-quarter report that disappointed investors, who sent the stock down nearly 10% the next day. Revenue and earnings topped Wall Street estimates, but investors weren’t happy with the continued decline in Tesla’s key profitability margins due to continued vehicle price cuts.

As usual, CEO Elon Musk and the top executives who joined him on the earnings call provided excellent information for Tesla investors. But Musk also made comments relevant to investors and prospective investors in the graphics chip specialist Nvidia (NVDA 2.20%)which is the main focus of this article.

Hologram of a person's brain over a semiconductor -- concept for AI.

Image source: Getty Images.

“Almost infinite” need for artificial intelligence (AI) training.

From Musk’s observations:

[O]Our Dojo training computer is designed to significantly reduce the cost of neural network training. … It’s somewhat optimized for the type of training we need, which is video training. So, you know, we just see that the training need of the neural network – talking about almost infinite things – is just huge.

Musk uses the term “neural network training.” A layman might think of this term as “AI training” or “deep learning training,” as deep learning is the type of AI that is experiencing rapid growth. A still simple, but more precise definition comes complementary to Amazon’s AWS site: “A neural network is a method in artificial intelligence that teaches computers to process data in a way that is inspired by the human brain.”

The key thing to know is that Nvidia’s graphics processing unit (GPU)-based products dominate the AI ​​education market and the overall AI computing market. (AI includes two steps: training and inference, with inference referring to the implementation of anything AI-trained… like a car or a chatbot.) A June Reuters article estimated Nvidia’s market share in the AI ​​market at between 80% and 95%, citing Wall Street analysts as sources.

As for Dojo, Tesla is developing this supercomputer, which will use its custom D1 chips, to train its AI models to enhance the self-driving capabilities of its advanced driver assistance system for its vehicles. Tesla’s main reasons for developing Dojo are likely to be reducing its reliance on Nvidia and helping to reduce AI training costs.

If all goes very well in the development of Dojo, Tesla could also sell these supercomputers or license the underlying technology to other companies. But that shouldn’t scare Nvidia’s investors. The AI ​​training market will be huge, big enough to support some leaders. Furthermore, Nvidia is so far ahead of the competition in this space that it seems poised to reign supreme for quite some time. Its advantage is not only due to its hardware or GPU, but also to the software tools it has long provided to AI researchers.

“We will actually take the hardware as soon as Nvidia can provide it to us”

From Musk’s observations:

[W]We’re also using a lot of Nvidia hardware. And we keep doing it, you know. We will actually pick up Nvidia hardware as fast as Nvidia will deliver it to us. Tremendous, tremendous respect for Jensen [Huang, CEO] and NVIDIA. They’ve done an incredible job. And frankly, I don’t know if they could provide us with enough GPUs. … [T]hey they have so many customers. They were kind enough to, however, prioritize some of our GPU orders.

The message in this quote appears to be that Nvidia has more demand for its GPU-based AI computing products that it can keep up with.

Indeed, Nvidia’s recent Q1 2024 fiscal report indicates that demand for the company’s family of data center products that enable AI applications is “increasing,” to use the term Huang used in his earnings release statement. Data center revenues increased 18% from the prior quarter. Also, citing strong demand for its data center products, Nvidia’s management led fiscal second-quarter revenue up 64% year over year and adjusted earnings per share up 286%.

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