Kale, and the economics of the AI industry
So, last week I stumbled upon this piece about Nvidia’s market cap going bonkers post-earnings. They crushed the sales forecasts and bagged…
So, last week I stumbled upon this piece about Nvidia’s market cap going bonkers post-earnings. They crushed the sales forecasts and bagged an extra $247B in market cap in just a day. To give you some context, that’s like 40% of Tesla’s market cap or more than Intel by 20%. 🤯, right?
It all boils down to this belief, which I’m totally on board with, that AI is gonna affect (and improve!) every aspect of our lives upside down. Right now, Nvidia is the king of GPUs, the brains behind training those AI models we chat with and ask all sorts of questions.
But then, this wild ride plus a killer All-in episode got me thinking back to my Econ 101 days. What’s the real deal with AI’s value chain when it all shakes out?
Breaking down the value chain
In simple terms, the value chain’s has to end with someone wanting what’s at the end of the rainbow. If there’s no craving for oranges, then what’s the point of growing them, right? And what about those fancy machines that pick the oranges? They’re just pricey lawn decorations without a market for oranges.
Kale and chips
Now, onto kale. Yep, kale. Once upon a time, kale was just a pretty leaf nobody really cared about. Imagine there’s this Kale Factory Inc., all about growing kale for looks. Then, boom, someone figures out it’s like eating a superhero. Suddenly, Kale Factory’s phones are ringing off the hook.
But here’s the kicker: Even though everyone’s buying kale by the truckload, they’re not sure how to make it a hit with the crowd. It’s all trial and error until Smoothies.inc cracks the code with a kale smoothie that wins hearts.
Up to that magic moment, Kale Factory was hogging all the value. But as soon as consumer love for kale smoothies exploded, the game changed. Smoothies.inc started slicing into Kale Factory’s pie, new players jumped in with their own twists, and specialized kale growers started cropping up, cutting deeper into Kale Factory’s share.
Funny enough, while everyone’s trying to figure out their version of the kale smoothy, we at Luzia has been quietly whipping up our own secret recipe. And let me tell you, it’s not just about blending greens; it’s about mixing the right tech that people actually wanna use.
Nvidia’s spot in all this
This kale tale isn’t too far off from Nvidia’s saga. Nvidia was all about gaming GPUs before the AI boom. Now, as everyone’s hustling to build AI capabilities and figure out the next big hit, Nvidia’s cashing in big time. But here’s the million-dollar question: What happens when the AI world finds its kale smoothie?
Here’s how I see it playing out:
As consumer AI hits its stride, companies that nail the end product will start claiming their share of the pie, thinning out margins all along the value chain, including for Nvidia.
The scent of success will lure more players into every layer of the AI stack, especially in hardware, where specialized chips (LPUs, anyone?) might offer what consumer AI really needs: speed and affordability.
And just maybe, by the time we’ve all got AI seamlessly woven into our daily lives, today’s hot tech might be yesterday’s news, prompting a whole new build-out wave.
Don’t get me wrong, Nvidia is going to make a ton of money, but it’s worth chewing on the idea that at the end of the day, it’s all about delivering something truly valuable to folks like you and me, which, unashamed second plug to Luzia, we do. Let’s drink those smoothies.
