Companies’ AI bets are at astronomical heights. C-suite likes its odds anyway.
A few months ago, it might have seemed that the stakes of the artificial-intelligence investment wave couldn’t have gotten much higher. Well, they have. Sequoia Capital last September published a report arguing that Nvidia infrastructure would have to collectively generate $200 billion in lifetime revenue to justify companies’ spending on those advanced AI systems over the course of just one year—and the spending wasn’t anywhere near that mark.
Given the torrid growth since then at Nvidia, whose dominant role in AI infrastructure makes it a good proxy for how much companies are spending on AI chips and systems, I asked Sequoia Partner David Cahn to update his research. “AI’s $200 billion question is now AI’s $600 billion question," Cahn answered. For those who want to run the numbers, Cahn arrived at his original $200 billion figure by taking investor estimates for Nvidia’s data-center revenue in the final quarter of 2023 and multiplying it by four to arrive at a run rate of $50 billion.
He calculated that Nvidia customers would spend an additional $50 billion on energy, buildings, backup generators and the like. Finally, he assumed that Nvidia users would seek a 50% gross margin on these investments, which would require the infrastructure to drive $200 billion in revenue. But some investors are now forecasting that Nvidia’s run rate for data-center revenue will reach $150 billion by the end of its fourth-quarter, according to Cahn.
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