Meet Nvidia: The Company Powering Global Computing

Hey Everyone - Harry here 👋

Welcome to Issue #20 of Deep Dive with Inquisition. Before we dive into this edition, I just wanted to say thank you for being an subscriber and inform everyone here that there will be many exciting major updates happening to Inquisition and the Deep Dive with Inquisition newsletter. Please stay tuned for it and let’s dive in!

In this edition, we’ll cover the story of Nvidia, one of the world’s largest and leading technology companies. It specializes in a range of technologies, including the design and supply of graphics processing units (GPUs), application programming interfaces (APIs) for data science and high-performance computing, and system-on-a-chip (SoC) units tailored for the mobile and automotive markets. Additionally, the company is a supplier to various firms in the hardware and software sector of AI due to the high demand for its GPUs. Nvidia's customers span the globe, including Google, Microsoft, OpenAI, Tesla, and more, with a valuation of $3.50 trillion as of October 2024. We’ll explore everything from its founding story to the strategies that have helped it become the company it is today.

Early Days of Nvidia:

Nvidia is a global tech company best known for its game-changing graphics processing units (GPUs), which power everything from video games to data centers and AI systems. The company also develops software for AI, high-performance computing, and autonomous vehicles. Nvidia was founded on April 5, 1993, by Jensen Huang, Chris Malachowsky, and Curtis Priem in Santa Clara, California. Initially focused on GPUs for gaming and multimedia, Nvidia quickly expanded into AI and other innovative fields, establishing itself as a leader in cutting-edge tech advancements.

Overview of the Global Market Nvidia is active in:

To understand Nvidia, you need information on the areas that use GPUs to function and accelerate. Below are quick overviews of the markets that (1) use GPUs directly or indirectly for accelerated result production (e.g., AI Industry—Conversational, Generative, Machine Learning (ML), Data Centers, etc.) and (2) require heavy graphics (e.g., Gaming, Video Production), and (3) Robotics and Automotive Industry.

1. The global Graphics Processing Unit (GPU) market is valued at $65.3 billion as of 2024.

2. It is predicted that, with an annual Compound Annual Growth Rate (CAGR) of 33.2% from 2024 to 2029, the global GPU market will be valued at $274.2 billion by 2029.

3. As of 2024, the global AI industry is estimated to be valued at over $200 billion, with the market rapidly growing and expected to reach $1.339 trillion by 2029, according to Forbes Advisor.

4. According to McKinsey & Company's 'The State of AI in Early 2024 Report,' AI adoption among organizations worldwide has remained steady at about 50% for the past six years, but this year, it has dramatically increased to 72%.

5. In 2024, the global Video Game market is projected to reach a revenue of approximately US$282.30 billion and is expected to grow at an annual rate of 8.76%, resulting in an estimated market volume of US$363.20 billion by 2027.

6. The global data center market is anticipated to achieve revenue of around $416.10 billion in 2024.

7. The global robotics market is anticipated to generate revenue of $46.11 billion in 2024, with a compound annual growth rate (CAGR) of 9.63% from 2024 to 2029, resulting in an estimated market volume of $73.01 billion by 2029.

The Rise of Nvidia: How it was first started:

Nvidia’s rise isn’t just due to a killer founding team or the strong initial capital they received from investors like Sequoia Capital. The real driver behind Nvidia’s success stems from the founders' prediction that computing demand would eventually outpace what CPUs could handle, making GPUs essential. That early conviction, combined with their engineering backgrounds and experience at companies like LSI, Sun Microsystems, IBM, and AMD, enabled them to trust one another and launch Nvidia in 1993 at Denny’s (yes, the diner) with just $40,000.

It actually took about six years for Nvidia to truly achieve Product-Market Fit (PMF). At the time, GPUs were primarily for gaming, and the demand simply wasn’t there yet. They launched their first product, the NV1, in 1995, but it was largely a failure. Still, the founders persevered and raised $20 million from major investors like Sequoia Capital to keep the company afloat.

Things became challenging when Microsoft released the DirectX API, a game-changer for video games. Nvidia had bet on the wrong architecture and faced a tough decision. In 1995, they had partnered with Sega on a 'next-generation' console, but DirectX changed the landscape. Nvidia was stuck: either continue with the Sega project and deliver a product that wouldn’t meet expectations or cancel the deal and risk running out of money.

CEO Jensen Huang had to make difficult decisions. He laid off half the company and had a candid conversation with Sega’s CEO, Irimajiri-san. Sega could either accept the not-so-next-gen console or end the partnership, with Nvidia receiving $5 million in compensation. In a surprising move, Sega decided to invest that $5 million back into Nvidia, even though the project wasn’t completed. With that investment, Nvidia shifted its focus and launched the RIVA 128 in 1997, which became a major success.

Despite receiving $5 million from Sega and reducing their workforce by 50%, Nvidia was still on the brink of bankruptcy, with only a couple of months of runway left when they launched the RIVA 128. Fortunately, it sold a million units in four months, bringing in much-needed revenue and providing a path forward. The RIVA TNT, launched in 1998, solidified Nvidia’s position as a leading player in the graphics card market.

By leveraging the fear of bankruptcy and driving product success, Nvidia attracted early customers and experienced rapid growth. This not only generated revenue but also established Nvidia as a major force in the semiconductor industry. The company went public on January 22, 1999, and Sega turned their $5 million investment into approximately $15 million by the early 2000s.

For most companies, going public is seen as a massive success—and in many cases, it is. However, for Nvidia, the IPO was merely a stepping stone to the future company that the world is witnessing today.

How Did Nvidia Become One of the Biggest and Fastest - Growing Technology Company?

Nvidia’s rise stems from the founders' early prediction about the next generation of computing, and the company is now reaping the rewards of the bets made long ago. Their success is not just a result of luck, support from companies like Sega, or capital from powerful firms like Sequoia Capital. It originates from a combination of factors that have contributed to the company's long-term success.

While it may seem like an overnight success story, driven by the recent global AI boom and capital markets moving alongside it, the general public's experience with generative AI—through services like ChatGPT, Claude, and others—has only added to this perception. In reality, Nvidia has been a long-term investor in emerging technologies, having allocated resources to AI as early as the 2010s, well before it became mainstream.

A crucial factor in their success is the 'just do it' mentality, which arose after realizing that the problem they were solving aligned with their first principles. Once they adopted this mindset, the founders leveraged everything they had—from expertise to their networks—to build a product that had not yet been introduced to the world, nor had an established market. This was Nvidia's entry into GPUs in the early 1990s, based on the belief that future computing would rely heavily on high-quality GPUs, along with advancements in AI, cloud computing, automotive technologies, and more.

Additionally, Nvidia's ability to foresee 'the next big thing' is driven by an insatiable hunger for continuous learning and improvement. The company has evolved quickly by adapting to new discoveries, understanding market trends, and using its resources to stay ahead. An example of this is the Sega x Nvidia story, where CEO Jensen Huang was transparent with Sega's management about the partnership and sudden market shifts, which led to new growth opportunities and ultimately saved Nvidia from bankruptcy after the project's completion.

By leveraging these factors, Nvidia not only fueled rapid growth but also anticipated the future, entering markets that didn’t yet exist. For instance, despite originally being a company focused on designing and selling high-performance GPUs, Nvidia invested its resources into cloud computing long before it became a mainstream technology.

By 2024, Nvidia reported $26.97 billion in revenue for 2023 and continued breaking records into 2024. In Q2 of 2024, the company generated $30 billion, marking a 15% increase from Q1 and a remarkable 154% growth year-over-year. As of October 2024, Nvidia is valued at approximately $3.50 trillion and has raised around $62 million from investors along its journey.

Below are the strategies that contributed to Nvidia’s growth:

1. Approaching things from first principles:

   → Jensen Huang (Co-Founder and CEO of Nvidia) is known for advocating the practice of following first principles and then 'just doing it' when those principles align. By adhering to first principles, individuals can break things down to their core (e.g., Nvidia as the scientific core of technology or the prediction of GPU adoption), rather than simply accepting industry norms. This approach encourages finding more efficient or innovative solutions, something Nvidia has successfully implemented since day one—whether it was popularizing high-performance GPUs or investing in entirely new areas that didn’t even have an existing market.

2. Leveraging what you have—whether it’s your expertise, network, or more.

   → The founders of Nvidia decided to co-found the company due to their belief that they could revolutionize the global video game and personal computing spaces through their own GPUs. Their leverage in the industry stemmed from their expertise as engineers, gained by studying and working at various leading semiconductor chip companies. By focusing on an industry where they had leverage, the founders were able to build a company like Nvidia—an important lesson for those who want to create and start their own businesses. What kind of leverage do you have that nobody else does, and how can you use it?

3. Having an immense hunger for continuous learning and improvement:

   → One of the key characteristics of successful people is an immense hunger for continuous learning and improvement. This principle applies to Nvidia as well, where the founders were always eager to learn and improve, which is clearly reflected in its products and the series of fortunate events it experienced as a company. Ultimately, this hunger for continuous learning and improvement has shaped Nvidia into the company it is today. This provides us with an important lesson: learning is a lifelong journey that should never stop, whether you are a solo founder who just incorporated your company or a founder of a company with trillions of dollars in market capitalization.

4. Paying attention to both small and big details from everything and everywhere:

   → Nvidia’s founding is rooted in its founders' close attention to detail in GPU architecture at a time when most of the industry was focused on CPUs. By recognizing the trend and the growing importance of graphical processing in gaming and other areas, such as AI, this realization and their subsequent actions over the years have shaped the company into what it is today and will influence its future. An important lesson here is the significance of paying attention to both small and large details from various sources, enabling you to learn and adapt quickly based on the factors at play. One of the reasons many successful companies fail is their failure to notice small and large changes, which allows competitors or emerging market trends to significantly impact their operations.

5. Predicting the future and betting on markets that aren’t yet found or discovered:

   → Predicting the future—whether for small or large developments—is challenging and often nearly impossible. However, it was a different story for Nvidia, as the company successfully predicted emerging technologies such as the AI boom, the multi-use of GPUs beyond gaming and personal computers, and the shift toward cloud-based technology, among others. It is crucial for every company to be able to anticipate the future and invest in markets that have not yet been fully discovered through an internal process that enables this foresight. For Nvidia, the strategies it employed for growth are a major reason for the company’s ability to predict and invest in the future—an important lesson for all founders and companies.

6. Having an trusted partner is crucial when you are running your company:

   → Running a company is extremely challenging, as we all know. However, what you need in life are trusted people and partners for your business. Take Nvidia, for example: they are a fabless semiconductor company, meaning they don’t manufacture their chips. Instead, they outsource production to partners like TSMC, a multinational semiconductor company that specializes in microchip production for other semiconductor companies. The partnership between these two companies has existed for nearly 30 years, and Huang has publicly admitted that Nvidia wouldn’t be where it is today without its partners, especially TSMC. A key lesson here is the importance of finding the right people for yourself and your company—individuals who can become long-term partners and from whom both parties can derive value. One-sided relationships, whether personal or professional, never work.

7.  Never Give Up:

   → Nvidia experienced many near life-or-death situations, from having only enough money to last the company 30 days to a defective chip packaging crisis that occurred during the mid-2000s. However, the company managed to survive by tackling these problems and finding solutions. Most importantly, nobody gave up even during the worst possible situations, which is an important lesson for everyone. Another crucial point to remember is that no matter how small or large the problem or challenge is, everything can be addressed and solved, especially when approached creatively. For example, Huang leveraged the end of the partnership with Sega not just as a setback but as an opportunity for the company to survive, despite the odds being heavily against it.

Challenges for Nvidia:

1. Navigating through the competition:

   → As the world experiences rapid advancements in AI, along with the integration of AI into other industries such as robotics, automotive, and data, the demand for chips is at an all-time high. This is great news for Nvidia and its competitors; however, it also means that the company will face increased competition. Nvidia will need to balance its focus between continuing to invest in future technologies and meeting the current demand through sales.

2. Supply Chain Constraints:

   → Despite its long-term partnership with TSMC, Nvidia is experiencing a lack of supply for its chips due to higher demand. It will be crucial for the company to rapidly address its customers' concerns and frustrations by asking its major supply partner, TSMC, to increase production of Nvidia chips or by increasing its reliance on other partners within its network instead of solely depending on TSMC.

3. Rapid Technological Advancements:

   → Another major challenge for Nvidia and technology companies in general is the rapid pace of technological advancements. For the company to continue dominating as an indispensable supplier to major tech companies across sectors such as AI and automotive, it must keep investing in areas that are not yet discovered or still in development—essentially, investing in the future. Additionally, Nvidia should not only maintain but also further expand its position as a market leader by continually improving its current technology, which will help establish long-term growth and strengthen its market position.

Future of Nvidia:

1. Focusing on Software and not only Hardware:

   → Nvidia isn’t only known for its hardware and excellence in GPUs; it is also recognized for its software, such as Omniverse, which has become a framework for companies and developers to create unified tools and data pipelines, as well as to simulate large-scale, realistic virtual worlds for industrial and scientific applications. In addition, CUDA is another software that allows developers to harness Nvidia GPUs for general-purpose computing, significantly accelerating tasks in fields like artificial intelligence and scientific research. We can expect the company to continue focusing on two main areas: (1) the improvement and introduction of new software targeting developers and companies, and (2) the integration of its software and hardware, not only providing hardware to meet demand but also enhancing its value proposition to both current and potential customers through the software it offers.

2. Further Growth and Expansion in Data Centers:

   → Nvidia has been investing in and building data centers using its chips since their opening in 2016. Moreover, the financial performance of these data centers is growing rapidly each quarter, driven by the rising global demand for data centers and technological shifts, such as the AI boom. We can expect the company to continue investing resources into its data center business and to put more effort into diversifying its business model so that it does not solely rely on supplying chips to its customers.

Key Takeaways from the Story of Nvidia:

The story of Nvidia teaches us several important lessons: being good at what you do right now is crucial, but equally important is preparing for the future—especially as a technology-focused company that constantly faces the risk of rapid technological change in the market. This situation is similar to how certain semiconductor companies have missed their chance to prepare for the AI boom. Another lesson is the importance of never giving up; Nvidia has faced various challenges, including moments when the company almost went bankrupt, failed partnership promises, and significant performance issues with the chips it supplied to millions of devices.

Being a successful company is about more than just numbers; it is about the journey the company has navigated over the years and whether it is willing to endure the process that leads to success. Just like the lesson from the story of Klarna, Nvidia’s story teaches us the importance of trusting the process with 100% conviction, even in the absence of a market, while facing constant fear and the risk of failure. Anything is possible if you dream big enough and are committed to making it happen in real life.

Below are the key - strategies that Nvidia used to become the company it is today:

1. Learn and Implement approaching things from First Principles:

   → Breaking things down into first principles and then following the insights gained from this process helps anyone, anywhere, make better decisions regarding their actions and more. Remember: what matters isn’t the societal norm or anything else; what matters is whether you believe this can become the next big thing that can rewrite how things are done around the world, along with a clear-cut theory that truly proves this is something worth devoting your time to.

2. Predict the future and invest into it aggressively:

   → Predicting the future comes from a combination of various factors coming together. However, all companies should strive to predict and invest in future possibilities, just as Nvidia did. The company was never hesitant to make bets on new technologies that didn’t even have an existing market, and the actions accumulated over decades are finally paying off with the rise of AI.

3. Identify your leverage and leverage it:

   → For the founders of Nvidia, it was their expertise and network that they successfully identified and leveraged. A key takeaway from this is the importance of building your leverage over time and using it when needed. This raises a question for readers: What is your leverage, and how can you use it?

4. Find an trusted partner who you can trust and collaborate on for an long period of time:

   → Just like the partnership story with TSMC, it provides us with an important lesson about identifying and establishing a long-term trusted partner with whom you can collaborate continuously. Nvidia wouldn’t be trusted or in demand without the high-quality production of its chips from TSMC. Being able to identify a trusted partner and maintaining a long-term collaboration is a must for every company.

5. Pay attention to small and big details:

   → In order to successfully predict and invest in the future, you need to pay attention to both small and big details. Just as the founders of Nvidia observed the rapid advancements in gaming and the increasing rate of personal PC adoption, they predicted a world where the demand for realistic graphics would grow and identified an opportunity in this area. Moreover, the company was also able to spot opportunities in emerging technologies like AI, where they realized that GPUs could be utilized in various applications. Consequently, Nvidia decided not only to create hardware that meets these challenges but also to develop a company that exceeds expectations by providing seamless integration between software and hardware. This allows existing and potential clients to easily adopt Nvidia’s software and hardware into their product development, making the overall experience frictionless.

If you’re enjoying the content, feel free to share the link below with your friends, family, and co-workers. Take a moment to check out what Inquisition is all about!

Thank you so much for reading!

-Harry