Nvidia CEO Reveals Why He Decided to “Rip the Band-Aid Off”

When the U.S. is in desperate need of more memory chips to meet the massive demand for hyperscale and A.I. enterprise customers. That is among the top reasons NVIDIA officially announced it's raising prices on its upcoming Vera Rubin and Grace Blackwell GPU chips. The semiconductor giant reported a second quarter top and bottom line beat last night. Revenue exploded 97 percent year over year to a record ninety six point two billion dollars soundly beating Wall Street's estimate of ninety two billion dollars. And it's his 15th consecutive quarter. NVIDIA has vaulted over expectations after the report. I spoke with CEO Jensen Wong about the impending price hikes and the bottlenecks he's facing in order to keep up with epic demand. Jensen I did not see in the report or hear a single indication that you or any of the A.I. players you deal with are stumbling let alone taking a breather in this A.I. race. If you had to use one word to describe not the recent quarter but the rest of the year coming up what word would you use. Demand accelerating. Not only is demand already strong is actually accelerating. It's really quite extraordinary. And the reason for that is this Liz is great to see you. The first thing is that A.I. has become useful. It's doing productive work and is doing productive tasks. And the tokens that these A.I. labs are generating are profitable tokens. And when you're generating something profitable and the demand is so extraordinary you want to generate more of it. So the thing that's limiting their growth today is not customers is not their technology. Customers are the demand is incredible. What's holding it back now is just compute. We need to bring more compute online so that we can help these A.I. labs grow. The second thing and this is the part that people don't see A.I. is far is way beyond more than just a few top A.I. labs. They're doing incredible work there. But A.I. is literally everywhere. It's being used in enterprises is being used all around the world. NEO and NEO clouds and sovereign A.I. clouds. The other half of our business that most people don't see that is also growing incredibly. And so we're just seeing growth everywhere. And next year we're launching a new product called Vera Rubin and the success of it is incredible. This is going to be the fastest product launch we've ever had in history. It was incredible last time with Blackwell. But Rubin is going to be even faster. So it's going to be a huge year next year. You had predicted Vera Rubin would be massive. Can you say that every single Vera Rubin chip that comes out of the fabrication plant is spoken for. And Jensen how far out do those orders go. Customers have to plan with us at least a year out these days because these are not you're not buying a computer you're building a factory. And these factories are 50 60 billion dollars in investment. And so you're planning it pretty far down the road. You know we have. We have complete visibility into our demand through all of next year and beyond. But for next year every single chip that we can make has already been sold. And so we have we're predicting at least 70 percent growth next year. And that's supply constraint. Our demand is really quite extraordinary. And speaking of looking a year out you had said that next year I believe revenue opportunity could receive could I guess exceed one trillion dollars. That would be double the five hundred billion that you are expecting this year total. So I'm just wondering I mean with such massive demand that you've just articulated is that one trillion number already old news. Is it on the move. Could it be higher. Well we were forecasting 70 percent growth year over year and so not quite a trillion. But our demand is greater than 70 percent. It's just that we only have supply chain support for 70 percent. I'm working with all the suppliers. You know we have the largest supply chain in the world and we have great partners. But the demand is just too strong. And so I need to make sure that I continuously work on on the supply. Otherwise our customers are going to be disappointed. Their demand is higher than the supply that we currently have. So what do you do with Taiwan. Send me your big manufacturer. Do you pick up the phone and start saying guys I need faster more. Well it's TSMC. It's packaging cost packaging is way versus packaging. It's memory. It's everything. It's networking it's transceivers it's silicon photonics. It's power generation in and in the in the data centers. It's availability of high quality land that's powered and ready to receive these computers. You know you've you've got bottlenecks literally everywhere because this is the largest. This is the largest infrastructure build out in human history. We're creating jobs in chip plants packaging plants computer plants and of course all of these data centers. And so we're creating jobs everywhere. And those are also a challenge because there's just not enough skilled labor around the world and surely not here in the United States to be able to support support my entire demand. But we have enough support for the 70 percent that I forecasted bottlenecks. I'm glad you mentioned that because the memory chip bottleneck is certainly an issue. One of the big questions that have been hanging out there was actually answered on the conference call by your CFO Collette Kress. She said that come the first quarter of next year the price of your chips will go up. The rumor has been that it would be up about 15 percent. What are you telling customers it will be. Is that around the correct number. Well we. This is one of the concerns that in fact most investors have had. They've seen that memory prices have gone way up. And so this quarter we decided that we would rip the bandaid off reset expectations about our gross margins and just explain to people that in fact we have now absorbed the cost increases. We have also repriced our products in the marketplace. And based on that our margins are going to come down from 75 percent. But it will be between 72 and 73 percent next year. And so we've now reset the expectations and you know remove this anxiety that everybody had about our gross margins that that's kind of been you know a bit of a cloud on our stock for some time. And I'm just happy that we're able to let everybody know that that we now have everything worked out and we rolled out rolled out new pricing. We've accepted all of our cost increases and everything is you know from this point forward let's go execute. Yeah. Well I ask because the 15 percent would make a single Vera Rubin rack cost around eight million dollars which I know there's a lot of money being thrown around here but certainly a question. Does it frustrate you when you talk about bottlenecks. There's that. There is the grid build out which of course is highly dependent on things like permitting that it's almost as if your own road map of growth now is helmed in by something that you don't even control when it comes to pushing out chips. It's somebody else's capacity. Well we announced this quarter we reported 100 percent growth year over year and that will supply constraint. Next year about this time will be 70 percent of course and that will be supply constraint. And of course it's also 70 percent off of a much much larger base. I wish we could do more. We're going to keep on working hard to do more. But some constraints in the system is not a bad not a bad thing. And it causes the best technologies to emerge and rise. It causes all of the best options to to emerge and rise. And so so I think it makes everybody sharper and makes all all of the market sharper. A.W.S. Amazon's cloud business and they will buy an additional two million GPUs from you guys and they'll be deployed 27 20 27 20 28. Is Amazon your best friend now. I mean that's a big number. We half of our business comes from the hyperscalers and so there's like six hyperscalers sometimes and they change. You know who is the largest changes from quarter to quarter. But half of our business comes from six hyperscalers. Now the businesses that we sell to them some of it is used internally but a lot of it is rented externally. And when they rent it they rent it to essentially NVIDIA developers all over the world. That's one of the great things about our architecture. We have so many end customers that our our platform our our technology is the most rentable of any that they have. It captures the highest pricing of anything that they have. And so that's one of the reason why we're so desirable. We're productive. The infrastructure is productive is fungible as it's durable has long life and it's really super rentable. And that's half of our business. The other half of our business is a large number of customers from industrials and enterprises and sovereigns and neo clouds. And so they're all over the place. But half of our business is concentrated within six partners and they're partly customers of ours and customers of ours. But they're also partly if you will partners of ours as we rent our platform to developers all over the world. You're wearing a lot of hats these days. I mean your original DNA has been that of a chip creator. But that role has truly expanded. It feels like Jensen over the past couple of years. It's almost like you guys have become somewhat of a in a different way a bank. And I mean I'm thinking of the Wall Street Journal article with the headline NVIDIA has become a banker to the A.I. boom putting it on dangerous grounds. I mean you've long invested in startups but this is different. You've become this direct investor in a whole bunch of whether they're hyperscalers or neo clouds. And that is interesting and maybe a bit worrisome to some people. What does the market have wrong when they worry about that. There's two parts to that. There's one part of it which is we're investing in the ecosystem. We're just like a venture capitalist in this way. Except these when I invest when we invest in these companies these companies use NVIDIA technologies. We only invent investing companies that are extremely high quality team great business opportunity important technology and they use NVIDIA platform. And so when we're investing in these companies we are highly informed investors. And the SpaceX going public you know we have some 20 30 billion dollars return on investment and we're delighted by that. And there are many examples of that. We're highly informed investors but we're investing in our ecosystem for developers that in the future will use NVIDIA technology. The second part of it is what people would call backstopping or guaranteeing. And this is this is really centralized around a couple a few of the A.I. labs and really primarily most of it is going to be around a couple of A.I. labs. And the reason for that is because obviously these are extraordinary companies going through an extraordinary time. Their businesses are turning a corner. They're inflecting and becoming quite profitable. And what they need is compute. But they don't have the balance sheet to go secure the loans. They don't have the they're not investment grade yet. They're they're neither of them a public yet. And so they don't have the ability to secure low cost capital. And therefore because we understand exactly what's going on with their business because we know compute is vital to their growth. And also because you know these companies are on the way of becoming public companies. This is really a perfect time for us to help them with their flywheel. And there we backstop them. My sense is that this is going to be a very very good investment and it's going to be a fantastic support to two of the most consequential companies in technology history. I just want to get your reaction to Bill Gates is missive that he just put out yesterday where he said this is going to be a problem for much of America. And the job losses are important enough that he suggested to tax tokens. What do you make of that. What do you think of that. Well I I I see things very differently than he does. And and and there are several things. Of course there are jobs that will be changed. Everybody's jobs will be changed because of my job has changed. And some jobs will be eliminated. Many new jobs will be created. And if you go back and look at look at history when technology revolutionary technology comes along incredible advances comes along. And so I believe again that this will be a net job creator. However there are going to be many jobs that will be disrupted. And so we have to be sensible about that. We have to be sensitive about that and be supportive of that. However this very important point we are going to be more productive when when companies are more productive. They don't lay off people. They hire more people. And the reason for that is because companies have ambitions. Most companies do. And I would say the vast majority of the world's companies do. They have ambitions for growth when they're more productive when they're more profitable allows us to invest more and go after more growth more growth. Nonetheless overall this is going to be a net job creator at a scale that we've never seen. And now coming back to even long before the A.I. gets deployed. Don't forget chip plants are being created packaging computer plants. All of the A.I. factories being created hundreds of thousands of jobs are being created as we speak. The shape of our economy will be very different in this new era. We have lots and lots of white collar workers but we're also going to have a lot of skilled labor and having a large population of skilled labor and people who build things and make things with their hands is tremendous for the United States. We want to reindustrialize reindustrialize the United States. We want to create more jobs. And all of that's going to happen. You know right now as we speak with A.I. So before we go is that a thumbs up or thumbs down on Gates's tax the tokens idea. Well we'll we'll see. First of all I'm in favor of taxes. And I think that that's for for anybody who who is productive. It's a great great way for us to contribute back to the society and the economy. But the fact of the matter is there are probably lots of different ways to to approach this. I I don't see what he sees. I love the heck out of Bill. But I don't I don't see what he sees. I see something very very different. And so you know my remedies will be a little different. Jensen very very fascinating quarter of growth and we look forward to what happens in the current quarter and beyond. Thanks so much for joining us. Thanks Liz. It's great to see you.