why is nvidia worth so much more than their supplier tsmc?
In: Economics
The market is not perfectly rationale. The hardest part of semiconductor is not the design (Nvidia), but the manufacturing the advanced nodes (TSMC). I agree TSMC is undervalued related to Nvidia.
However, Nvidia does offer an entire software ecosystem called CUDA which makes their hardware easier to use for building AI models. A lot of value is on CUDA as well.
Same way that a horse-shoe company can be worth more than the iron mine. The value-add in configuring the source material into something more useful and productive can be worth a lot.
But mostly it’s market hype and a sudden surge in very specific needs in AI development.
Arguably because NVIDIA adds more value with their chip designs that the value added by TSMC’s manufacturing step. Else we would also exoect AMD and other companies making GPUs with TSMC to be worth just as mucj as NVIDIA. They aren’t because there is more demand for NVIDIA’s specific design of GPU.
I make a great piece of digital art and have it printed. I have all the rights to the art. Other people may have their art printed from the same printer, but our art is not the same. People buy my art not because of the quality of paper or the ink. They buy it because of the art. It’s what distinguishes me from other competitors despite us using the same printer.
TSMC has competitors, Nvidia right now kind of doesn’t. Also, the political risk in Taiwan sucks balls. If Chinese lose their marbles, there is no TSMC anymore.
Mind you, they are both very highly valued, pe of 36 for tsm is no joke. Its just that 75 of nvda is a different league entirely. Big growth expected out of both of them. Luckily there is no end in sight for demand of more compute capability.
Because tsmc isn’t charging them enough money to justify a massively increased price.
Nvidia of course is designing the chips, that’s extemely hard, basically the only companies in that side of the business are Nvidia and amd and to a lesser extent Intel. But it also writes a huge amount of supporting software and research to support using Nvidia chips, and that’s the real hard part. Once you depend on Nvidia hardware for software compatibilityyour options to change become very expensive.
Other companies are trying to get into the gpu/accelerator business, google, Amazon, a bunch of Chinese companies etc. But the ones that respect intellectual property are going to be stuck making hardware that isn’t CUDA compatible, and since a lot of the software depends on CUDA or other Nvidia libraries, Nvidia retains an advantage.
On the manufacturing side, while it’s true that the leading edge node for manufacturing is a tough place to be, that’s the corvette or Cadillac portion of GM or the Lamborghini or porsche part of Volkswagen group. Most of the business is lower value lower margin stuff that’s easier to make and more competitive. And tsmc depends on their own suppliers who can sell to competitors (Samsung, Intel, And to a lesser extent say global foundries, IBM, a few others), so tsmc might not be able to retain a node advantage for long, and then Nvidia could have their chips made by other suppliers or multiple suppliers.
Ultimately another chip manufacturer could come and take the job of TSMC, but another chip designer can’t easily replace Nvidia.
Same reason apple.is worth way more than Foxconn and Pegatron who make apple products. Lots on .obey in the IP
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