Owners of Nvidia (NASDAQ:NVDA) stock just got an intriguing update. In partnership with the UK government, the company announced that a massive artificial intelligence (AI) chip cluster will be built on these shores.
The numbers involved are large, as is the way with Nvidia’s announcements these days. AI factories with up to 120,000 of its Grace Blackwell Ultra GPUs will be deployed across UK data centres by 2026, powering initiatives like OpenAI’s Stargate UK project in Northumberland. This build-out will cost upwards of £11bn.
Meanwhile, Microsoft and Nscale (a UK-based AI infrastructure company) will construct the UK’s most powerful supercomputer in Loughton, Essex. It will be stuffed with more than 24,000 cutting-edge Blackwell GPUs.
CoreWeave and BlackRock will also build and upgrade UK data centres respectively. Elsewhere, a quantum-GPU AI supercomputing centre will be built, as well as an R&D hub to accelerate the UK’s AI robotics ecosystem.
Nvidia CEO Jensen Huang believes that robotics/self-driving cars — which the company’s chips and software platforms help power — will become a multi-trillion dollar industry.
The United Kingdom is building the infrastructure for the AI industrial revolution…We are at the big bang of intelligence, and the United Kingdom’s Goldilocks ecosystem of world-class expertise, outstanding universities and vibrant industries is uniquely positioned to thrive in the age of AI.
Jensen Huang.
Not so great news out of China
To me, all this shows that Nvidia remains the default infrastructure layer for AI in the West. AI factories involve not just GPUs, but CPUs, networking solutions, and software and services — all pies that Nvidia has its fingers in.
However, recent news that Beijing has banned Chinese tech firms from buying Nvidia’s modified AI chips isn’t great. Before this, companies in the world’s second-largest economy had started placing orders with Nvidia again.
Let’s be honest, the UK has great universities and AI researchers, as Huang points out. But we don’t have tech giants like China does in the shape of Tencent, Alibaba, and TikTok owner ByteDance, each spending tens of billions every year on AI chips and infrastructure.
I fear this ban will limit Nvidia’s ability to beat Wall Street’s expectations in the coming quarters.
Patience
According to forecasts, Q3 revenue will jump 55% to around $54.6bn, and full-year revenue to $206bn (+58%). Almost $100bn in free cash flow is expected.
For context, revenue and free cash flow for fiscal 2022 — just before the AI boom exploded — came in at $26.9bn and $8bn respectively. Truly insane growth.
The stock’s forward price-to-earnings (P/E) ratio for the next fiscal year is 29. Based on this, it doesn’t look obviously overvalued to me. There’s absolutely no suggestion that Western tech giants are about to pull the plug on AI infrastructure investments.
But there’s a risk that a self-contained Chinese AI ecosystem could spawn serious competition in robotics, rivalling Nvidia in the same way that BYD does Tesla. There isn’t any immediate danger of this, but it’s something that Huang has publicly warned about. I suspect Beijing was listening too.
I think investors may want to wait for a pullback before considering jumping into Nvidia shares.
