GPUs are the semiconductor chips that power gaming systems and artificial intelligence (AI).
To explain, oil is a valuable commodity that drives trade and commerce. During the 20th century oil, was the commodity that drove the world economy. For example, petrodollars, crude oil export revenues denominated in US dollars, were the basis of US economic power in the 1970s and 1980s.
Global crude oil exports generated $3.2 trillion in petrodollars at a price of $100 per barrel, Investopedia estimates.* Petrodollars are the basis of many nations’ wealth, including Saudi Arabia and Norway. For example, the petrodollar is the basis of Norway’s $1.4 trillion sovereign wealth fund.
Today advanced semiconductors, such as GPUs, could replace oil as the world’s most important commodity. For example, the Saudi Arabian government bought 3,000 NVIDIA H100 GPUs at $40,000 apiece, Business Insider India reports. Hence, I estimate the Saudi government spent $120 million for 3,000 GPUs.
They built the NVIDIA H100 Tensor Core GPU to support large language models. Large language models are the build blocks of Generative AI solutions such as ChatGPT. NVIDIA claims the H100 is “AI-ready infrastructure.” For example, NVIDA claims the H100 can support AI chatbots such as ChatGPT, recommendation engines, deep learning and vision AI.
Notably, NVIDIA claims the H100 can make AI training four times faster. They also claim the H100 can make deep learning 30 times faster. Hence, AI could learn 30 times faster with H100. Theoretically, the H100 could make AI faster, smarter, and more powerful, which is why so many people want them.
Importantly, the Saudis got the money for those GPUs by selling oil. Hence, some Saudis think advanced chips are now more valuable than oil.
How the US Government Made Semiconductors the New Oil
News articles do not say why the Saudi government bought the GPUs. I suspect the Saudis could plan to sell or trade to the GPUs to Chinese companies. I think the GPUs value rose because of the US government action.
The Bureau of Industry and Security (BIS) restricted the export of advanced integrated circuits to China on 7 October 2022. The restrictions make it illegal for US companies to ship many GPUs to China and to sell American designed semiconductors to Chinese buyers. To elaborate, the BIS is the US Commerce Department agency that regulates American technology exports.
Critics claim the BIS restrictions are a deliberate strategy by US President Joe Biden (D-Delaware) to destroy the Chinese technology sector.
“In short, the Biden administration is trying to:
(1) Strangle the Chinese AI industry by choking off access to high-end AI chips.
(2) Block China from designing AI chips domestically by choking off China’s access to U.S.-made chip design software.
(3) Block China from manufacturing advanced chips by choking off access to U.S.-built semiconductor manufacturing equipment.
(4) Block China from domestically producing semiconductor manufacturing equipment by choking off access to U.S.-built components,” Gregory C. Allen writes. Allen is the Director of the Wadhwani Center for AI and Advanced Technologies.
Plus, Biden signed the US Chips and Science Act, which bars American companies from financing semiconductor plants in China for 10 years. On 9 August 2023, Biden issued an executive order increasing the US Treasury Department’s authority to regulate semiconductor and other exports.*
Hence, the Biden Administration is telling the world how valuable semiconductors and GPUs are. The BIS is saying that semiconductors and GPUs are vital to technological development, which increases their development.
I think the BIS’s actions explain the Saudi government’s H100 purchases and a similar purchase by the United Arab Emirates government. The Saudis could trade the H100s to Chinese companies for items and knowledge it needs. For example, help to develop nuclear weapons or solar panels.
Moreover, the Saudi government can use the threat of shipping H100s to China to force the US government to give it stuff it wants. For example, more US built weapons and munitions for the war in Yemen.
Plus, the Saudis can sell the chips to other countries or governments or use them for its own AI efforts. Cynics will note that the Saudis can take the GPUs apart, analyze them, and steal the designs. The Saudis can build their own chips or sell the GPU designs to Chinese manufacturers.
Are GPUs the New Oil?
The Saudis are not the only ones buying H100 GPUs. The world’s richest man, Elon Musk, has bought 10,000 GPUs for his artificial intelligent projects, Business Insider claims. Musk has several projects that could require GPUs, including AI, self-driving cars, supercomputers, and robots.
The size of the global GPU market could grow from $40 billion in 2022 to $400 billion in 2032, Statista estimates. In contrast, the global market for crude oil was worth $2.1 trillion in 2022 Visual Capitalist estimates.
Hence, GPUs have a long way to go before dethroning oil. Still their value is growing. If Statista is right, GPUs could be the second-most valuable commodity in 2032. In 2022, the second-most valuable commodity was iron ore. The global market iron market was $283 billion in 2022.
Thus, GPUs are not yet the “New Oil.” However, GPUs could become the new iron ore.
Does Mr. Market think GPUs are the New Oil?
Mr. Market thinks GPUs could become the New Oil. For example, he paid $188.79 for the H100’s manufacturer Nvidia Corp (NVDA) on 16 August 2022 and $434.86 on 16 August 2023. Moreover, NVIDIA had a $1.074 trillion Market Cap on 16 August 2023.
Conversely, Advanced Micro Devices (AMD) share price grew from $100.20 on 16 August 2022 to $107.19 on 16 August 2023. Advanced Micro Devices had a $172.615 billion Market Cap on 16 August 2023.
In contrast, Mr. Market paid $36.19 for Intel (INTC) on 16 August 2022 and $33.53 on 16 August 2023. Intel had a $143.383 billion Market Cap on 16 August 2023. Interestingly, Chinese authorities blocked Intel’s attempt to acquire Israel-based Tower Semiconductor (TSEM) by slowing paperwork, Quartz claims. Quartz and Reuters speculate Chinese authorities were retaliating for the BIS’s semiconductor restrictions.*
Tellingly, Tower Semiconductor’s share price fell from $47.65 on 16 August 2022 to $30.17 on 16 August 2023. Tower had a Market Cap of $3.536 trillion on 16 August 2023. Less than the $5.4 billion Quartz claims Intel offered for it.
Interestingly, the Tower deal’s collapse comes as Israeli Prime Minister Benjamin Netanyahu says Chinese involvement in the Middle East “could be useful.” One side effect of the deal could be to make Tower cheap enough for a Chinese semiconductor maker, such as SMIC or HiSilicon to buy it.
Hence, Mr. Market is skeptical of semiconductors but bullish on NVIDIA’s GPUs. Thus, there is some evidence to support the contention semiconductors are the New Oil.
However, I think speculators need to be careful with semiconductors and GPUS. To elaborate, I expect an unstable GPU market with lots of bubbles for the next few years.
Yet, I expect the semiconductor market will boom for the next few years because of the AI hype and the Biden Administration’s clumsy efforts to weaponise this tech against China. So yes, semiconductors and GPUS could become the New Oil.
*//www.businessinsider.in/stock-market/news/saudi-arabia-uae-join-elon-musk-and-chinese-tech-titans-in-the-race-for-scarce-nvidia-chips/articleshow/102750671.cms#:~:text=Saudi%20Arabia%20has%20purchased%20at,according%20to%20the%20Financial%20Times.
*https://www.csis.org/analysis/choking-chinas-access-future-ai
*https://www.statista.com/statistics/1166028/gpu-market-size-worldwide/
*https://www.visualcapitalist.com/how-big-is-market-for-crude-oil/#:~:text=How%20Big%20Is%20the%20Oil,%242%20trillion%20at%20current%20prices.&text=Based%20on%20prices%20as%20of%20June%207%2C%202023.
*https://www.investopedia.com/terms/p/petrodollars.asp
*https://www.reuters.com/business/finance/norway-wealth-fund-posts-143-billion-h1-profit-2023-08-15/
*https://qz.com/intel-tower-china-us-tech-wars-semiconductors-deal-1850742582
