Synopsys deal is ‘culmination of everything I showed you’
In this year’s flurry of massive artificial intelligence deals – for which a couple of billion dollars is pocket change – Nvidia ‘s announcement on Monday of a $2 billion investment to expand its long-time partnership with Synopsys might seem just incremental. Not so, asserted Nvidia CEO Jensen Huang, in an interview with Jim Cramer shortly after the news broke. Jensen said, “This is a huge deal.” Here’s why: Synopsys provides software and tools that allow companies like Nvidia to design, test, and verify semiconductors. Jensen said, “Nvidia was built on a foundation of design tools from Synopsys,” among others. This deal allows Synopsys, which earlier this year completed its purchase of engineering simulation software maker Ansys, to leverage Nvidia’s AI platform to deliver computer-modeled design and engineering solutions across many industries. Nvidia’s powerful chips, called graphics processing units (GPUs), are the gold standard in AI. With Monday’s deal , Nvidia will be positioned to bring GPU-powered accelerated computing to the world’s industrial sector, which represents an addressable market measured in the tens of trillions of dollars. What makes that possible is that the AI we are talking about here obeys the laws of physics, meaning that it can be relied upon to show how things will really run in the real world. Synopsys CEO Sassine Ghazi, standing alongside Jensen, said that what we’re talking about here, in a practical sense, is taking a workload that may have taken two to three weeks and compressing that to a matter of hours. Even with the work of Synopsys and other electronic design automation (EDA) providers, Jensen said Nvidia still spends “billions of dollars in prototyping” products in the physical world. “In the future, we’re going to prototype all of these products digitally so that we don’t waste any money when we build it physically,” he explained. “We could do basically the entire engineering work inside a computer in a digital twin before we have to build it at all. So, the type of products we can invent and the quality that we could do, and the speed that we could do it at is going to be extraordinary.” Jensen said that industrial companies that make things, be it Nvidia, or GM , or Boeing , spend hundreds of millions, even low billions of dollars on engineering software tools. He noted, however, that the money spent on prototyping can be 10 times to 20 times that figure. The ability to prototype digitally, therefore, represents a massive opportunity for industrial companies to reduce costs. Jensen told Jim, “This is really the culmination of everything I showed you when you visited Nvidia years ago. It’s taken this long for us to create the software stack necessary for Synopsys and the rest of the EDA [electronic design automation] industry, in order for them to accelerate the software that they’ve historically only run on CPUs [central processing units].” He added, “All of a sudden, the market opportunity increases by a factor of 10 to 100.” Jim Cramer, who started recommending Nvidia stock in 2009, first interviewed Jensen a year later. The “Mad Money” host even renamed his dog “Nvidia” in 2017 to demonstrate his belief in the company. While first bought in Jim’s Charitable Trust in August 2017 and exited in October 2018, Nvidia stock has been a constant since we re-initiated it in March 2019. More recently, Jim hosted Jensen at the Investing Club’s October Monthly Meeting, where the CEO got to meet many early Nvidia investors who made lots of money on the stock. The Trust is the portfolio the Club uses. In Monday’s interview, Jim also pressed Jensen on recent concerns about whether the launch of Gemini 3, powered by Google’s custom chips, would encroach on Nvidia’s GPU business. Google’s own semiconductors, called tensor processing units, were co-designed by Broadcom . Jensen, who complimented Google on their chips, said, “What Nvidia does is much more versatile,” dismissing the concerns and bringing the conversation back to the potential of the Synopsys investment. “You’re now seeing a real, tangible example of an opportunity that we could do with our platform that nobody else can.” AI goes far beyond the chatbots and consumer-facing solutions that have garnered most of our attention – and contributed to the pressure on shares of Nvidia since the Gemini 3 launch. Jensen said that Monday’s announcement is about revolutionizing the industrial software industry, where the stakes are much higher. On the consumer side, an answer to a query that is 90% correct, or recommends an item, movie, or new music with 90% accuracy, is a pretty good start – but on the industrial side, “that 10% you don’t get right, becomes mission critical,” the CEO added. That’s also why the pace of advancement has been so much faster in consumer AI. However, as exciting as the consumer-oriented developments have been, it’s the industrial side that likely proves to be the real opportunity. While capital expenditures by the biggest tech companies in the world to support consumer AI has, thus far, been the real driver of AI investment and infrastructure spending, the industry is now getting to the point where we should see spending ramp up elsewhere, be it from automakers like Ford and GM, or even ship builders in Korea. Not only does that speak to more spending in the years to come, but also a diversification of the spending base, which should materially help to de-risk the customer base for companies like Nvidia that have in recent years seen so much of their demand come from a select few customers. Ultimately, the move marks a significant milestone for Nvidia and the AI trade more broadly as it lays the groundwork for a material expansion in industrial AI. As we see it, the deal is a strong move for both companies. Synopsys gets to better serve its customers, while Nvidia expands its own ecosystem and helps to lay the groundwork for even more GPU-based accelerated computing infrastructure. On a conference call hosted by both companies to discuss the deal, Jensen said, “Of all the AI opportunities – industrial AI, physical AI – is the largest of all. And the reason for that is very clear. The world’s industries represent the vast majority of $100 trillion industry today. That industry, whether you’re designing cars or trains or planes or designing computers, all of that largely is based on general purpose computing. … But in order for us to go even further, in order for us to do even more, expanding the reach of design and engineering so that we could do almost everything in the world inside a digital environment, long before we create the physical manifestation, that journey, we’ve been preparing for several years now, and today our announcement really kicks it into turbocharge.” Jensen wrapped up by noting that Synopsys is the company that has allowed Nvidia to design its own chips, since its founding, and that the deal announced Monday is going to “enable everyone to design everything that’s physically manifested in the future.” (Jim Cramer’s Charitable Trust is long NVDA, AVGO, BA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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