The Next Frontier for Chip Makers

By: Soham Dharmadhikary (M&T, ‘21)

Nvidia’s recent stock price seems to indicate that the love investors have long had for it and its peers is coming to an end. From 2013 to early 2018, Nvidia’s market capitalization grew by more than 1,500%, and companies like AMD have followed similar trajectories over the past few years.

https://www.investopedia.com/markets/stocks/nvda/

Though high valuations are not new in the technology sector, these highs all seem to be crashing down. And the main driving force seems to be the cryptocurrency bust. While chip makers saw record high sales as the hype of bitcoin and ethereum mining escalated, the same providers have reported disappointing earnings as this trend has reversed. Investor confidence in the company has since diminished significantly, with the market correction not helping matters. In the past 6 months, Nvidia has traded down around 40%, while Intel and AMD have seen similar declines. However, the recent lows for chipmakers may not be here to say, as many gear up for the next frontier of development, self driving cars.

Now, much like bitcoin and ethereum, the buzz around self driving cars has seemed to penetrate every corner of the country, to both positive and negative reactions. While many naysayers argue that autonomous vehicles will not fill our streets in the near future, many chipmakers are betting that they are already on their way.

https://www.nvidia.com/en-us/self-driving-cars/drive-platform/

In 2017, Intel acquired MobilEye, a company specializing in collision avoidance, and built relationships with Fiat Chrysler, Waymo, and BMW to increase its supply of vehicle specialized chips. Nvidia is not far behind, with partnerships with Audi, Uber, and Toyota. The key to these developments is a new class of micro devices: AI enabled chips. It is no surprise that autonomous vehicles require the pinnacle of micro technology; the visualization, manipulation, and processing of data requires strong computing power. And incumbents in this space seem to be stepping up to the challenge.

Yet, they are not alone in doing so. Where once early stage investors shrugged at the thought of startups in the micro chip industry, after all competing with the likes of Intel and AMD seemed foolish, the advent of this new challenge has brought many more players to the stage. As of January of this year, more than 45 startups are working towards producing new, sophisticated AI chips, and at least 5 of them have raised more than $100 million in funding.

Companies like Cerebras, Graphcore, and Wave Computing recognize that even with the oligarchy and capital intensive processes that go into chip making, the explosion of AI is proving that there is yet a niche to be fully claimed. And after claiming top talent from Intel and AMD, they seem poised to prove themselves soon.

But the new entrants do not stop there either. Only a few months ago, Tesla announced that it would end its partnership with Nvidia in favor of its own internally developed technologies. Microsoft and Google have also illustrated their capabilities in GPU development, so it is hard to believe that they will be far behind in announcing the same.

These developments in mind, the future of Nvidia is perhaps even more unclear. Opportunities are expanding, but so are competitors. And even more so than ever, there are many moving parts to consider. Uncertainty lies in the adoption of autonomous cars, government regulations, future AI developments, budding startup success, and even the possible (but unlikely) resurgence of bitcoin. Yet it is becoming more clear that, as Objective Analysis analyst Jim Handy says, “The automotive market is becoming the new battleground for the semiconductor industry” (source).

Here at Penn, many of our professors are working on cutting edge research into just this issue. Along with researchers from CMU, Penn faculty were granted $14 million from the department of transportation to set up a University Transportation center, which is aimed at ensuring safe and efficient autonomous travel in the 21st century. Rahul Mangharam, a professor in systems and electrical engineering, has spearheaded research in this area on campus.

Ultimately, as consumers, investors, and observers, we can only wait to witness where these vehicles take us.

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Soham Dharmadhikary is a sophomore studying Computer Science and Finance. He has previously worked at Capital One as a Product Management and Analytics intern and enjoys travelling and watching movies. Feel free to reach out to him at sohamd@wharton.upenn.edu.