There's a certain kind of
computer chip that has become incredibly important to the
modern world. The GPU short for graphics processing unit. GPU is
bring digital worlds to life. In the last few years, they've
become v computer chip of choice among certain crypto miners.
They're also becoming increasingly more important and
cutting edge fields like self driving cars and supercomputing.
But like every other kind of computer chip and 2021 GPUs
remain in short supply. The current state of the chip market in
terms of gamer perception is utter Bedlam. If you are
interested in doing anything in PC gaming, that is anywhere near
cutting edge, you're either trolling through as many eBay
listings as possible, lining up at retailers the instant they
might have availability for a new card, or giving up. GPUs are specifically designed
computer chips that process complex calculations alongside a
CPU or a central processing unit. All computers have CPUs,
more and more. They also now have GPUs either to play games
handle complex visual software, or to conduct parallel
processing. Now, why did we make that shift?
because historically, computation used to be serial,
that let's say I give you a certain workload, and you were
able to divide that workload into smaller pieces. And a CPU
would be able to go through each of those many workloads
serially. So as an example, if there is a picture, and I asked
you to find the shape of an animal in the picture, I can
bear it that picture into a grid. And I can go through those
grid points one by one, which is serial processing, or do you
know what I can do is I can look at every grid point with its
individual processor all at the same time. That's parallel
processing. The Covid 19 pandemic wreaked havoc on the
world supply chains, semiconductors quickly became
very hard to find. When COVID-19 first emerged, strict lockdowns
caused demand to plummet across entire industries. But when
lockdowns lifted and vaccines rolled out, demand came back in
a big way helped, of course by generous government stimulus
programs. And since computer chips and semiconductors are now
used in virtually everything, supply dried up as demand came
roaring back. Now for GPUs demand came from a few camps.
You had your PC gamers, your crypto miners and people who
wanted to hoard graphic cards in order to sell them later, GPUs
became super hard to find retail prices on the secondary market,
they sold for several times their MSRP. Now, the tough part is that, you
know, in semies, we are just going through this tough period
of supply shortages. So one way or another, I think we would
have gotten this issue whether even if, and just crypto miners
are exacerbating that problem somewhat. Historically, GPUs were used to
power video game graphics from the arcade rigs to the early
home gaming consoles. And for the most part, that's what they
still do. The GPU business as we know it, though, got started in
the 1990s. Computer games were advancing quickly and they
needed more processing power. Companies like 3d FX popped up
to help PC gamers play the latest games without having to
buy entirely new computers. And they did that by introducing
video cards to help process increasingly complex 3d
graphics. In 1999, Nvidia announced the GeForce 256
calling it the world's first GPU that kicks off an arms race
between Nvidia which ended up buying 3d FX and a Canadian
company called ATI which was bought by Advanced Micro Devices
in 2006. For $5.4 billion. That arms race is still very much
going on between Nvidia and AMD. But yeah, I mean, like Nvidia
and AMD are the two big retail brands for gamers such that like
they kind of divide themselves into these tribal identities
around like which brand of chipmaker they support in video
folks, LEED Green and the AMD people are Team Red. Yeah, they
really want to hold on to this this core loyal customer base
gamers. GPU makers like Nvidia and AMD
are known for making games look more and more amazing. Each
year. The companies hold flashy events to launch new graphics
cards. With the latest ray tracing technologies. They sell
GPUs to data center clients as well. In fact Nvidia brought in
about $2.4 billion last quarter from its data center business a
record number. Its gaming business, though brought in $3.1
billion during the same quarter also record At 5% higher than
the year before, there's another group of retail consumers who
want the same GPUs as gamers, crypto miners. And if you go to a Best Buy, you
cannot buy an ASIC. You cannot buy, you know, programmable
chip. So you can really buy a graphics processor and you know,
if you buy it and you're not using it for ethereum a lot of
the time, I mean, you can use it for gaming also, the summary
point is that right now GPUs are offering that computation of
flexibility and ease of purchasing that matches well
with where etereum is in its lifecycle. Covid also sparked a boom in
gaming with everyone stuck inside the supply chain crunch
seen across all sorts of other industries hate computer chips
the hardest, and video remains the leader and the GPU industry
by a wide margin controlling about 83% of the discrete GPU
market and the most recent quarter. AMD is market share
rests in about 17% as of last quarter, Nvidia needed to do
something to ensure that gamers had access to GPUs. First in
early 2021 introduced hash limiters to its latest line of
graphics cards. crypto miners quickly figured out a way to
beat them. Nvidia has essentially like just
nuked its its own graphics cards to try to weaken them in key
ways to divide them between the chips that are meant for the
gamers and the chips that are meant for the crypto miners.
They are trying to keep this core block of super dedicated
customers happy. It's just like the supply chain is so screwed
up. Like none of this has worked its way through the system yet
to meet a demand from gamers for the latest graphics cards. The company also released what's
called CMP chips or chips, specifically designed for crypto
mining to help ensure that GPU supplies remain in stock for
gamers sales for that chip pale in comparison to gaming chips.
And its most recent quarter and video said CMP chips brought in
$266 million in sales, which is lower than the 400 million the
company had predicted in May. What's more in video CEO says
the chip shortage will persist into 2022. They're kind of stuck in this
very strange conundrum of having a product that they cannot keep
on store shelves, but also having a reputation of game fans
being furious about them not being taken care of. The Ethereum blockchain is
supposed to undergo a massive overhaul in 2022. Going from a
proof of work protocol to proof of stake. This has big
implications for how ethereum the world's second largest
cryptocurrency gets mined, the world's largest digital
currency. Bitcoin has grown so large in recent years that
hardware companies now make computer chips, specifically
designed to mine Bitcoin. They're called ASIC chips, which
stands for application specific integrated circuit. But where we are today is that
the ethereum still requires a lot of complex calculations. But
it is not at a point yet where you can design those ASICs,
right where the algorithms keep on changing. So there is always
that increasing complexity. And to handle that increasing
complexity, you need something that can be programmed very
quickly. proof of work requires machines
to complete increasingly complex math equations to generate new
coins. This requires more and more computing power and
requires more and more energy. It's how Bitcoin gets mined and
ether as well. The ethereum community, though, plans to
switch to a proof of stake model that requires users to put up
their existing cache of ether as a way to verify transactions and
create new coins that would completely overhaul the way that
ether gets mined today, and it would cause demand for GPUs
among ether miners to plummet. The real interesting question to
me is that if you are a miner, and if you think that ethereum
is indeed going to go to this proof of stake, why are you
still bidding up the price of this card? Why, you know, 123
times above MSRP. So maybe that market is implicitly trying to
tell us that that don't be fixated in terms of, Oh, this is
Bitcoin, there's ethereum and this is this coin or that coin,
that people who are buying this, maybe think that the need for
complexity in this market will never go away. So to them even
paying up for this technology today. It's still worth it Nividia's doing great at selling
out this very expensive thing. But that doesn't mean that
they're going to own an entire market, an entire number of
users, and they're interested in things like cloud. They like
Microsoft have a whole cloud system and Google and Ubisoft
and many other companies, even Sony have these online streaming
services where they have their own server farms with their own
giant graphics card slapped in You just log in, and you use the
internet's back and forth latency to play the games you
want. So there could be a future in a few years where you're not
hunting for a GPU, or a console or a big box in your home, and
you simply log in and pay per month, and the idea of the
millions and millions of people who would pay per month and give
you that recurring revenue. That's, That, to me is arguably
a more interesting future than the big robust graphics card.
