Nvidia: AI will need more computing power, not less

AI will need more computing power, not less. DeepSeek claimed it had trained its R1 model for a fraction of the cost and computing power of US models, causing a sharp drop in Nvidia’s stock price. But Huang thinks those selling off made a big mistake. Newer models will need a lot more computing power thanks to their more detailed answers, or in the parlance of AI folks, “inference.” The chatbots of yore spit out answers to queries—but today’s models need to “think” harder, which requires more “tokens”—the fundamental units of text models use—whether it is a word from a phrase, a subword, or a character in a word.

Extreme output speed and better reasoning will be the difference between success and failure. Nvidia’s Blackwell GPUs are in full production—with 3.6 million of them already used. An upgraded version, the Blackwell Ultra, boasts 3X performance. The new Vera Rubin chip and infrastructure is coming down the pike. The “world’s smallest AI supercomputer” is at the ready. Software for AI agents is coming fast and furious into the physical world, including self-driving cars, robotics and manufacturing.

Investors should buckle up for the long run. Stock-watchers might well have wanted to see an accelerated timeline for Nvidia’s new AI chip, the Vera Rubin, to be released at the end of 2026, or more details about the company’s short-term roadmap. But Huang focused squarely on the fact that while AI pundits had insisted over the past year that improvements were slowing down, Nvidia believes getting AI improvements to “scale” is improving faster than ever (to Nvidia’s sales benefit, of course). “The amount of computation we need as a result of agentic AI, as a result of reasoning, is easily 100 times more than we thought we needed this time last year,” Huang said. 

But will Nvidia’s efforts to drive growth be enough to keep enterprise companies investing in all things Nvidia? Will buying Nvidia’s costly AI chips—which can run between $30,000-40,000 each, prove too burdensome, given the still-unclear-ROI of AI investments? Ultimately, Nvidia’s premium picks and shovels require enough customers that are willing to keep digging.

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Top news

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Roberts v Trump: U.S. Supreme Court Justice John Roberts defended the independence of the federal judiciary in a clear criticism of Trump’s calls to remove judges who disagree with him. Roberts said, “impeachment is not an appropriate response to disagreement concerning a judicial decision.” Separately, a federal judge ruled that the White House’s dismantling of USAID was unconstitutional because, among other things, Elon Musk was not appointed by the Senate.

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The markets

• The Fed is expected to say it will hold interest rates steady (4.25%-4.5%) at 2pm ET today. All the attention will be on Fed chairman Jerome Powell’s commentary and guidance for the future. The VIX (volatility) rose 6% yesterday as the S&P 500 dropped 1% to 5,614.66. The index of major US companies is down 4.54% YTD. Reddit fell 12% on the day. The Nasdaq Composite gave up 1.71%. Futures contracts on the S&P were up 0.18% this morning.

From the analysts

• Ark Invest on the “AI crisis” at Apple: “AI could create a new class of operating system allowing users to manage wildly performant AI agents. As users seek a new operating system to manage their agents, AI agents could reduce the consumer need for apps and traditional web interfaces, putting Apple’s entire app store franchise at risk. Just as the iPhone relegated cellular companies to providers of dumb pipes, AI could render smartphone manufacturers into providers of dumb hardware. No wonder leaks from internal meetings suggest that Apple is in an ‘AI crisis,’” per Cathie Wood.
• Goldman Sachs on the effect of “trade policy uncertainty” on jobs: “Using a cross-country panel regression, we estimate that a rise in TPU to 2018-2019 levels lowers year-over-year employment growth by 0.1-0.2pp in DMs, implying a roughly 20k/month drag on job growth in the US and the Euro area,” per Jan Hatzius et al.
• UBS on the U.S. Economy: “Political polarization in the US has created unrealistic views of the economy (both pessimistic and optimistic). Some of the pessimistic polarization may be evident in … sharp declines in business sentiment. Retail sales data did flag some concerns—weaker restaurant spending is sometimes an early warning of growing consumer fears for the future,” per Paul Donovan.

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