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PaperclipPerfector  8d ago (text post)   28102 thread views

Culture War Roundup for the week of December 16, 2024

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To get to the really important question: Does this mean we should be buying NVIDIA stock?

I think the answer to this is just 'yes.'

In that I believe that any world where Nvidia stocks are tanking, there's probably a lot of other chaos and you will be seeing large losses across the board.

The only inherent risk factor is that their product is dependent on thousands of inputs all around the world, so they're more sensitive than most to disruptions.

I'd rather buy TSMC. Fabs & Foundries are the main bottleneck. Nvidia & TSMC's volumes will scale together. TSMC has invasion risk, but you can offset that by investing in Intel. TSMC's PE ratio is 30, and isn't pumped up by recent deliveries. Intel is technically in dire straits, but IMO that's priced in. Their valuation is 0.1x of TSMC.

On Monday, I'll be buying some TSMC & Intel together. At $3.2T, I don't think Nvidia stock is going to more than 2x above SNP growth.

Why not also ASML?

Because I am a dum dum.

I understand that they have a monopoly on the market. But, What the fuck is photolithography ? More realistically, how big is their moat ? How lasting is their tech ? How are types of etching different? Why is it hard ?

I am not going to jump in blind.

Well, obviously don't just take my word for it, but:

Photolithography is the use of high-power light, extremely detailed optical masks and precise lenses, and photoresistive chemicals that solidify and become more or less soluble in certain solvents upon exposure to light, to create detailed patterns on top of a substrate material that can block or expose certain portions of the substrate for the chemical modification required to form transistors and other structures necessary to create advanced semiconductors. It's among the most challenging feats of interdisciplinary engineering ever attempted by mankind, requiring continuous novel advances in computational optics, plasma physics, material science, chemistry, precision mechanical fabrication, and more. Without these continuous advances, modern semiconductors devices would struggle to improve without forcing significant complications on their users (much higher power dissipation, lower lifetimes, less reliability, significant cost increases).

The roadmap for photolithographic advances extends for at least 15 years, beyond which there are a LOT of open questions. But depending on the pace of progress, it's possible that 15 years of roadmap will actually last closer to 30; the last major milestone technological advance in photolithography, extreme-ultraviolet light sources, went from "impossible" to "merely unbelievably difficult" around '91, formed a joint research effort between big semiconductor vendors and lithography vendors in '96, collapsed to a single lithography vendors in '01, showed off a prototype that was around 4500x slower than modern machines in '04, and delivered an actual, usable product in '18. No one else has achieved any success with the technology in the ~33 years it's been considered feasible. There's efforts in China to generate the technology within the Chinese supply chain (they are currently sanctioned and cannot access ASML tech); this is a sophisticated guess on my part, but I'm not seeing anything that suggests anyone in China will have a usable EUV machine for at least a decade, because they currently have nothing comparable to even the '04 prototype, and they are still struggling to develop more than single-digit numbers of domestic machines comparable to the last generational milestone.

There are a handful of other lab techniques that have been suggested over the years, like electron beam lithography (etch patterns using highly precise electron beams - accurate, but too slow for realistic use) or nanoimprint lithography (stamp thermoplastic photoresist polymer and bake to harden - fast, cheap, but the stamp can wear and it takes a ludicrously long time to build a new one, and there's very little industry know-how with this tech). They are cool technology, but are unlikely to replace photolithography any time soon, because all major manufacturers have spent decades learning lessons about how to implement photolithography at scale, and no comparable effort has been applied to alternatives.

There's two key photolithographic milestone technologies in the last several decades: deep ultraviolet (DUV) and extreme ultraviolet (EUV), referring to the light source used for the lithography process. DUV machines largely use ArF 193nm ultraviolet excimer lasers, which are a fairly well-understood technology that have now been around for >40 years. The mirrors and optics used with EUV are relatively robust, requiring replacement only occasionally, and usually not due to the light source used. The power efficiency is not amazing (40kW in for maybe 150W out), but there's very little optical loss. The angle of incidence is pretty much dead-on to the wafer. The optical masks are somewhat tricky to produce at smaller feature sizes, since 193nm light is large compared to the desired feature sizes on the wafer; however, you can do some neat math (inverse Fourier transform or something similar, it's been a while) and create some kinda demented shapes that diffract to a much narrower and highly linear geometry. You can also immerse the optics in transparent fluid to further increase the numerical aperture, and this turns out to be somehow less complex than it sounds. Finally, it is possible to realign the wafer precisely with a different mask set for double-patterning, when a single optical mask would be insufficient for the required feature density; this has some negative effect on overall yields, since misalignments can happen, and extra steps are involved which creates opportunities for nanometer-scale dust particles to accumulate on and ruin certain devices. But it's doable, and it's not so insanely complex. SMIC (Chinese semiconductor vendor) in fact has managed quad-patterning to reach comparable feature sizes to 2021 state-of-the-art, though the yields are low and the costs are high (i.e. the technique does not have a competitive long-term outlook).

EUV machines, by contrast, are basically fucking magic: a droplet of molten tin is excited into an ionized plasma by a laser, and some small fraction of the ionization energy is released as 13.5nm photons that must be collected, aligned, and redirected toward the mirrors and optics. The ionization chamber and the collector are regularly replaced to retain some semblance of efficiency, on account of residual ionized tin degrading the surfaces within. The mirrors and optics are to some extent not entirely reflective or transparent as needed, and some of the photons emitted by the process are absorbed, once again reducing the overall efficiency. By the time light arrives at the wafer, only about 2% of the original light remains, and the overall energy efficiency of this process is abysmal. The wafer itself is actually the final mirror in the process, requiring the angle of incidence to be about 6°, which makes it impossible to keep the entire wafer in focus simultaneously, polarizes the light unevenly, and creates shadows in certain directions that distort features. If you were to make horizontal and vertical lines of the same size on the mask, they would produce different size lines on the wafer. Parallel lines on the mask end up asymmetric. I'd be here all day discussing how many more headaches are created by the use of EUV; suffice it to say, we go from maybe hundreds of things going mostly right in DUV to thousands of things going exactly right in EUV; and unlike DUV, the energies involved in EUV tend to be high enough that things can fail catastrophically. A few years back, a friend of mine at Intel described the apparently-regular cases of pellicles (basically transparent organic membranes for lenses to keep them clean) spontaneously combusting under prolonged EUV exposure for (at the time) unknown reasons, which would obviously cause massive production stops; I'm told this has since been resolved, but it's a representative example of the hundreds of different things going wrong several years after the technology has been rolled out. Several individual system elements of an EUV machine are the equivalent of nation-state scientific undertakings, each. TSMC, Intel, Samsung need dozens of these machines, each. They cost about $200M apiece, sticker price, with many millions more per month in operating costs, replacement components, and mostly-unscheduled maintenance. The next generation is set to cost about double that, on the assumption that it will reduce the overall process complexity by at least an equivalent amount (I have my doubts). It is miraculous that these systems work at all, and they're not getting cheaper.

If you're interested in learning more, there's a few high-quality resources out there for non-fab nerds, particularly the Asianometry YouTube channel, but also much of the free half of semianalysis.

From an investment standpoint... Honestly, I dunno. I think you might have the right idea. There's so much to know about in this field (it's the pinnacle of human engineering, after all), and with the geopolitical wedge being driven between China and the rest of the world, a host of heretofore unseen competitor technologies getting increasing focus against a backdrop of increasing costs, and the supposedly looming AI revolution just around the corner, it's tough to say where the tech will be in ten years. My instinct is that, when a gold rush is happening, it's good to sell shovels; AI spending across hyperscalars has already eclipsed inflation-adjusted Manhattan Project spend, and if it's actually going where everyone says it's going, gold rush will be a quaint descriptor for the effect of exponentially increasing artificial labor. So I'm personally invested. But I could imagine a stealthy Chinese competitor carving a path to success for themselves within a few years, using a very different approach to the light source, that undercuts and outperforms ASML...

The problem with TSMC is that if China ever goes for an invasion of Taiwan you could be looking at a 90 plus percent drop in value overnight. That’s why Buffett sold off most of Berkshire Hathaway’s TSMC stock. Although he’s pretty risk-averse generally.

That's why I am hedging by buying Intel too.

There are only 2 companies with any kind of foundry expertise. If TSMC goes under, Intel will at least double overnight.

If TSMC goes under, Intel will at least double overnight.

Intel in particular also happens to be a strategically-vital interest for the United States, especially assuming TSMC's absence. (Their Israeli branch is also a strategic interest for Israel, though nobody talks about that one as much.)

There are only 2 companies with any kind of foundry expertise.

Samsung

Global foundries

Dropped out of the process node wars but still makes quality chips. If we're going for any non-cutting edge foundries the list grows quite a bit

You're absolutely right, although one could argue that the business case would change if TSMC would go under due to geopolitics. Also legacy nodes account for some 30-40% of TSMC revenue.

TSMC make NVIDIA's chips so discount them too.

Not an investor, but I was just thinking that. But the entire market would presumably go haywire if war happened with China. It would, in an economic sense, be the end of the world as we know it.

Well, Defense companies.

But I sure as hell don't want to try to actively invest during a hot war with China.

Yes: And all other stocks in the world, roughly proportionate to their market values—preferably through broadly diversified, cost-efficient vehicles.

preferably through broadly diversified, cost-efficient vehicles.

I don't know. To quote OpenAI, "it may be difficult to know what role money will play in a post-AGI world." While almost all stockholder distributions are currently paid in cash, in-kind distributions are not unknown, and could potentially become the primary benefit of holding AI-exposed companies. If Microsoft gives stockholders access to the OFFICIAL OPENAI EXPERIENCE MACHINE, you might not get access simply from holding SPY, QQQ, or VTI. Hell, you might want to direct-register your shares to prevent any beneficial ownership shenanegans.

I don't see why the potential of such a shareholder benefit wouldn't be priced in. I doubt I'm the first to think of this ("but I arrived at it independently" pete_campbell.png); however, it would be funny if Chat-GPT's advice were to invest in MSFT, NVDA, TSMC, telecom, robotics, weapons, etc.

I fail to see many AGI scenarios that don’t lead to 90 percent of humanity being taken to a ditch and shot.

When cars were invented, 90% of horses weren't taken to the glue factories and shot, were they? They just kinda stopped breeding and withered down to entertainment, gambling, and hobbiests, while the rest died off on their own. ... right?

Seems like humanity is already horsing themselves to death without AGI.

Maybe, but humans have a pretty easy time of doing that without AGI (re: Khmer Rouge).

Owning stock in the company that builds AGI is one of the best ways to increase your probability of being in the 10%!

Fun fact: This is isomorphic to Roko's Basilisk.

I think so. The compute-centric regime of AI goes from strength to strength, this is by far their most resource intensive model to run yet. Still peanuts compared to getting real programmers or mathematicians though.

But I do have a fair bit of NVIDIA stock already, so I'm naturally biased.

Why? In time a handful of foundation models will handle almost everything, buying the chips themselves is a loser’s game in the long term. When you buy Nvidia, you’re really betting on (a) big tech margins remaining excessive and (b) on that margin being funnelled direct to nvidia in the hope that they can build competitive foundation models (not investment advice.)

Nvidia is 80-90% AI, Microsoft is what, 20% AI at most? Getting Microsoft shares means buying Xbox and lots of other stuff that isn't AI. I have some MSFT (disappointing performance tbh), TSLA and AVGO but Nvidia is still a great pick.

OpenAI and Anthropic have the best models, they're not for direct sale.

In the compute-centric regime, chips are still king. OpenAI have the models, can they deploy them at scale? Not without Nvidia. When AGI starts eating jobs by the million, margins will go to the moon since even expensive AI is far cheaper and faster than humans.

I'm no financial analyst but I'm inclined to say yes, keep buying. I really think that despite the AI buzz and hype, most of the business world still hasn't priced in just how economically impactful AGI (and the path towards it) is going to be over the course of this decade. But you might also want to buy gold or something, because I expect the rest of this decade is also going to be very volatile.

Is NVIDIA really the only game in town here? No Chinese competitor giving them a run for their money, etc?

For the last few years I have thought that for sure other companies would be able to knock-off their market share. This opinion has cost me thousands of dollars.

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