Nvidia's Q4: Will Investors Be Patient with the AI Payoff?

Nvidia's earnings report shows that the amount of money flowing into AI is staggering. The question is: When will we see these investments pay off?

Investment indicators in just the last 24 hours:

1️⃣ Nvidia's blowout quarter. $22B revenue in ONLY 3 MONTHS.

A 265% increase from the same quarter last year.

The data center portion of this ($18.4B) grew 409% from a year ago.

Half of that comes from the big cloud providers.

(An aside: Keep in mind Nvidia has only about 20,000 employees. Can you imagine the bonuses these folks might be getting???)

2️⃣ A $1.5B investment in Moonshot AI, one of the front-running LLM startups in China. Big names contributing to the raise like Alibaba and Sequoia China (now called HongShan).

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📊 Now let's look at Microsoft's earnings from a few weeks ago:

- Cloud revenue of $33.7B, which is up 24%, and they attribute 6 percentage points of that to AI demand.

If I'm doing my math correctly (always a question mark with those of us who are much better with words than numbers), that means about $1.6 billion of that cloud revenue is from new AI demand.

Now let's make an assumption and split the half of Nvidia's data center revenue in thirds to divide it evenly among the 3 big cloud providers.

That puts Microsoft's contribution to that revenue (ie, Microsoft's spend) at about $3 billion.

💰 Not a great ROI for Microsoft just yet.

I know this a GROSS oversimplification - Microsoft is both spending on and profiting from AI in other ways.

But the point is still relevant - the returns almost certainly will come, but it could take a few years. How patient will investors be to see the profits roll in?

And on the user side, how patient will companies be to see profits from their own AI investments?

We shall see....