NVIDIA I (1993-2006)
He wears signature leather jackets. He can bench press more than you. He makes cars that drive themselves. He’s cheated death, both corporate and personal. Nope, he’s not Elon Musk, he’s Jensen Huang.
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He wears signature leather jackets. He can bench press more than you. He makes cars that drive themselves. He’s cheated death — both corporate and personal — too many times to count, and he runs the 8th most valuable company in the world. Nope, he’s not Elon Musk, he’s Jensen Huang — the most badass CEO in semiconductor history. Today we dive into the first chapter of his and Nvidia’s incredible story. You’ll want to buckle up for this one!
Company Overview
Company Name: NVIDIA
Year Founded: 1993
Headquarters Location: Santa Clara, California
Core Business and Significance: NVIDIA is one of the most valuable companies in the world. It designs graphics processing units (GPUs) and related software, initially targeting the PC gaming market.
History and Facts
Narrative
Nvidia’s origin story is a thrilling saga of resilience, innovation, and strategic audacity, centered on Jensen Huang’s unrelenting drive to survive and redefine the semiconductor industry. Born in Taiwan in 1963, Jensen’s early life was marked by bold moves—his family’s relocation to Thailand, his parents’ decision to send him and his brother to a Kentucky reform school at age nine, and their eventual move to the U.S. These experiences forged Jensen’s fearlessness, a trait that would define Nvidia’s trajectory. At Oregon State University, Jensen’s passion for electrical engineering blossomed, and his time at AMD and LSI Logic exposed him to the complexities of chip design and the potential for specialized hardware. By 1992, at a Denny’s in Silicon Valley, Jensen, alongside Sun engineers Chris Malachowsky and Curtis Priem, conceived Nvidia to capitalize on the rising demand for 3D graphics, inspired by games like Wolfenstein 3D and Doom. Their vision was ambitious: to enable 3D graphics as a storytelling medium on consumer PCs, a market then dominated by expensive Silicon Graphics workstations.
Nvidia’s early years were a crucible of competition and near-failure. Launched with $2 million from Sequoia Capital and Sutter Hill, Nvidia was the first of 90 graphics chip startups, a “brain-dead yes” for venture capitalists in 1993’s PC peripheral boom. The company’s initial strategy focused on proprietary quadrilateral-based graphics for Sega’s consoles, but this misstep proved nearly fatal when Microsoft standardized on triangle-based Direct3D in 1996, and Sega abandoned Nvidia’s NV2 chip. With nine months of runway, Jensen’s intellectual honesty—described as Nvidia’s cultural cornerstone—led to a brutal pivot. Nvidia laid off 70% of its workforce, standardized on Direct3D, and bet on emulation technology to design the RIVA 128 chip in record time. This chip, though flawed (supporting only 8 of 24 blend modes), outperformed competitors, selling 1 million units in four months in 1997. The episode captures this as a defining moment, with Ben and David marveling at Jensen’s ability to “thread the tightest needle possible,” leveraging necessity to outpace rivals on a six-month design cycle while others took 18–24 months.
The late 1990s and early 2000s saw Nvidia’s ascent as a market leader, driven by strategic partnerships and technological leaps. A pivotal deal with TSMC in 1998, sparked by Jensen’s letter to Morris Chang, gave Nvidia access to a top-tier foundry, enabling higher-quality chips. The 1999 launch of the GeForce 256, branded as the first GPU, redefined the industry with 5X performance, capitalizing on the hardcore PC gaming market’s demand for superior graphics. Nvidia’s 1999 IPO at a $600 million market cap and a $500 million Xbox deal with Microsoft in 2000 cemented its financial and strategic footing. The 2001 GeForce 3 introduced programmable shaders, transforming GPUs from fixed-function accelerators to programmable units, enabling dynamic lighting and new creative possibilities for developers. Ben and David highlight this as a “game-changing” bet, aligning with Microsoft to avoid Intel’s commoditization threat. Nvidia’s revenue soared from $158 million in 1999 to $2.8 billion by 2005, making it the fastest semiconductor company to reach $1 billion and earning S&P 500 status.
By 2006, however, Nvidia faced new challenges. Revenue growth slowed, and gross margins remained low at 29% (compared to 66% today), reflecting the Xbox deal’s low margins and rising competition from ATI. Intel’s Larrabee project and AMD’s failed acquisition attempt (thwarted by Jensen’s demand to be CEO) signaled ongoing threats. Yet, Nvidia’s early investment in high-performance computing—evidenced by a researcher’s use of GeForce cards for quantum chemistry—hinted at future potential. The episode portrays Jensen as an underrated CEO, whose ability to reinvent Nvidia through three near-bankruptcies laid the foundation for its later dominance. Ben and David’s enthusiastic tone underscores Nvidia’s role in creating a new artistic platform, democratizing 3D graphics for storytelling, and setting the stage for its machine learning pivot, teased for Part II.
Timeline
February 1963: Jensen Huang is born in southern Taiwan.
1972: At age nine, Jensen and his brother are sent to Oneida Baptist Institute, a reform school in Kentucky, becoming the first Chinese students there.
1978: Jensen’s family moves to the U.S., first to Tacoma, Washington, then to Portland, Oregon, where Jensen attends public school.
1979: Jensen places third in junior nationals for table tennis, featured in Sports Illustrated.
1980: Jensen enrolls at Oregon State University at age 16, majoring in electrical engineering.
1984: Jensen graduates and joins AMD as a chip design project manager, working on a 1 MHz CPU.
1985: Jensen begins a master’s degree in electrical engineering at Stanford, completed in 1992.
1987: Jensen joins LSI Logic, working closely with Sun Microsystems on SPARCstation 1 chips.
Thanksgiving 1992: Jensen meets Chris Malachowsky and Curtis Priem at Denny’s, where they pitch a graphics chip company for consumer PCs.
1993: Nvidia is founded by Jensen, Malachowsky, and Priem, raising $2 million from Sequoia Capital and Sutter Hill at a $6 million post-money valuation. The name “Nvidia” is derived from “invidia” (Latin for envy), with “NV” from “next version.”
1994: Nvidia secures a deal with Sega to power 3D graphics for arcade and home consoles (later Sega Saturn).
1996: Sega abandons Nvidia’s NV2 chip due to incompatible quadrilateral-based design, leaving Nvidia with nine months of runway.
1997: Nvidia releases the RIVA 128, a Direct3D-compliant chip, selling 1 million units in four months despite supporting only 8 of 24 blend modes.
1998: Nvidia signs a multi-year deal with TSMC as its primary foundry after Jensen’s letter to Morris Chang.
1999: Nvidia rebrands its products as GeForce, launching the GeForce 256, marketed as the first GPU, with 5X better performance. Nvidia goes public at a $600 million market cap.
2000: Nvidia secures a $500 million annual deal with Microsoft to supply GPUs for the Xbox, including a $200 million advance.
2001: Nvidia introduces the GeForce 3 with programmable shaders, enabling dynamic lighting and marking a shift from fixed-function graphics accelerators.
2001–2005: Nvidia’s revenue grows from $158 million (1999) to $2.8 billion (2005), becoming the fastest semiconductor company to reach $1 billion in revenue and joining the S&P 500.
2006: AMD attempts to acquire Nvidia, but the deal fails when Jensen insists on being CEO of the combined company. AMD acquires ATI instead.
Notable Facts
Jensen’s Reform School Experience: Jensen and his brother were the first Chinese students at Oneida Baptist Institute, a Kentucky reform school, where Jensen befriended a 17-year-old ex-convict, sparking his lifelong weightlifting habit.
Denny’s as a Strategic Hub: Nvidia was conceived at a Denny’s, where Jensen, a former employee, favored the Super Bird sandwich, reflecting his folksy yet visionary leadership.
Sequoia’s Risky Bet: Sequoia’s $1 million investment, despite Jensen’s botched pitch, was driven by LSI Logic CEO Wilf Corrigan’s endorsement, yielding a 100X return by Nvidia’s 1999 IPO.
RIVA 128’s Emulation Gamble: Nvidia spent one-third of its cash on unproven emulation software, running at one frame every 30 seconds, to ship the RIVA 128 in nine months, a process that typically took two years.
GeForce Branding Origin: The GeForce name, derived from “Geometry Force” via an internal contest, became a hallmark of gaming performance, with the GeForce 256 coined as the first GPU.
Financial Metrics
Revenue Growth:
1999: $158 million
2000: $375 million
2001: $735 million
2002: $1.4 billion
2005: $2.8 billion
Gross Margin (2004): 29%, reflecting low-margin Xbox deals and competitive pressure.
Market Capitalization (1999 IPO): $600 million, a 100X return from the $6 million post-money valuation in 1993.
Market Share (2006): 83% of standalone GPUs for desktops and laptops.
Transaction
No major acquisition, IPO, or financial event is the central focus of this episode, as Ben and David emphasize NVIDIA’s strategic and technological evolution from 1993 to 2006. However, two transactions are discussed:
1999 IPO
Date: Early 1999
Parties Involved: NVIDIA, underwriters (not specified)
Deal Size: Raised capital at a $600M market cap
Valuation: 100X return from the $6M post-money valuation in 1993
Strategic Rationale: Provided capital to fuel R&D and expansion, cementing NVIDIA’s public market presence
Impact: Enabled GeForce 256 launch and Xbox deal, driving revenue from $158M in 1999 to $1.4B by 2001; positioned NVIDIA as a credible industry leader, though flat growth by 2005 showed need for further innovation
2000 Microsoft Xbox Deal
Date: 2000
Parties Involved: NVIDIA, Microsoft
Deal Size: $500M/year contract with a $200M advance
Valuation: Not applicable, but bolstered NVIDIA’s financial stability
Strategic Rationale: Secured NVIDIA as the GPU supplier for Xbox, aligning with Microsoft’s DirectX ecosystem and shielding against Intel’s commoditization
Impact: Boosted revenue past $1B by 2001; validated programmable shaders and CG, but low margins (29% by 2004) and Microsoft’s leverage constrained profitability
The episode’s focus is NVIDIA’s survival and innovation, not a single transaction. The IPO and Xbox deal were pivotal but secondary to Jensen’s strategic bets, like pivoting to Direct3D and inventing programmable shaders.
Grading
Ben and David assign NVIDIA an A for its performance from 1993 to 2006, praising its survival and industry creation but docking points for Microsoft’s value capture. “I give NVIDIA an A because they’re basically the only company that survived… but it’s not an A+ because Microsoft,” David says. They assess NVIDIA’s ability to exploit the computer graphics market, noting its 83% GPU market share and $1.4B revenue by 2001. However, Microsoft’s strategic leverage—securing low-margin Xbox deals and controlling DirectX—siphoned significant value. “Microsoft did basically nothing except make really good strategic decisions,” Ben quips, highlighting how Microsoft profited from NVIDIA’s risk-taking.
No acquisition categories (e.g., talent, technology) are discussed, as the episode focuses on NVIDIA’s organic growth, not M&A. The grade reflects NVIDIA’s value creation—building the GPU industry and enabling PC gaming’s rise—but acknowledges its limited value capture due to low margins (29% in 2004) and Microsoft’s dominance. Jensen’s reinventions, from the RIVA 128 to programmable shaders, tie to NVIDIA’s strategy of outpacing competitors via rapid innovation, positioning it as the market leader despite fierce competition.
Tech Trends
Ben and David identify three technological waves shaping NVIDIA’s success:
3D Graphics Boom: The rise of 3D graphics, driven by games like Doom and Wolfenstein 3D, created demand for PC graphics cards. “The PC wave is really cresting right now,” Ben says, noting how consumer appetite for 3D gaming fueled NVIDIA’s early market. This trend drove NVIDIA’s focus on performance, culminating in the GeForce 256’s programmable shaders, which enabled dynamic visuals.
Programmable GPUs: NVIDIA’s invention of programmable shaders marked a shift from fixed-function graphics accelerators to intelligent GPUs. “Now you can program for these GPUs and make dynamic lighting,” David explains, emphasizing how this empowered developers to create unique game experiences. This trend underpinned NVIDIA’s differentiation from Intel’s commoditization push.
Parallel Processing: GPUs’ parallel architecture, ideal for graphics, hinted at broader applications. “The magic of GPUs is that they’re very, very parallel,” Ben notes, foreshadowing future uses like scientific computing. While not fully realized by 2006, early experiments (e.g., the Stanford researcher’s story) showed GPUs’ potential beyond gaming.
These trends connect to NVIDIA’s Playbook (e.g., democratizing developer tools via CG) and Powers (e.g., process power from rapid chip design). Programmable GPUs gave NVIDIA a competitive edge, but reliance on Microsoft’s DirectX posed risks, as competitors like ATI adopted similar standards.
Playbook
Ben and David distill five key learnings from NVIDIA’s strategy:
Ruthless Reinvention: NVIDIA survived by repeatedly reinventing itself. “If you’re not reinventing yourself, you’re just slowly dying, unfortunately, at the rate of Moore’s Law, which is the fastest of any rate that we know,” Jensen says, reflecting on pivots like adopting Direct3D and launching programmable shaders. This kept NVIDIA ahead of competitors.
Simulation as a Superpower: Facing bankruptcy in 1996, NVIDIA used emulation software to design the RIVA 128 in nine months. “The way they saved themselves was with simulation,” Ben says, linking this to modern applications like NVIDIA’s Omniverse.
Democratizing Developer Tools: NVIDIA’s CG language and programmable shaders empowered developers. “They created a new artistic platform for artists to tell their stories,” David says, reducing barriers for non-Carmack-level developers.
Performance Over Perfection: The RIVA 128’s success, despite supporting only 8 of 24 blend modes, showed performance trumped completeness. “Consumers are going to buy hardware and games based on the quality of the graphics,” David notes.
Intellectual Honesty: Jensen’s willingness to abandon quadrilaterals and lay off 70% of staff reflected NVIDIA’s culture. “Intellectual honesty is the cornerstone of NVIDIA’s culture,” Jensen says, enabling tough but necessary pivots.
These strategies tie to Tech Trends (e.g., programmable GPUs enabled developer tools) and Powers (e.g., process power from fast design cycles). They positioned NVIDIA to dominate PC gaming but left it vulnerable to low margins and Microsoft’s leverage by 2006.
Powers
The most relevant of Hamilton Helmer’s 7 Powers is Process Power, implied by NVIDIA’s ability to design and ship chips on a six-month cycle, far outpacing competitors’ 18–24 months. “They’re now shipping relatively doubling the performance… every six months,” Ben says, describing how NVIDIA’s emulation-driven RIVA 128 process gave it a lead. This power manifested in the GeForce 256’s 5X performance edge and NVIDIA’s 83% market share. Process power tied to the Playbook’s reinvention and simulation themes, enabling NVIDIA to stay ahead of Moore’s Law. It created a competitive moat by delivering superior performance before rivals, though low margins (29% in 2004) limited economic power. The Tech Trends of programmable GPUs and parallel processing amplified this, as NVIDIA’s process enabled cutting-edge features like shaders.
Carveouts
David’s Carveout: Elden Ring, a 2022 video game. “Lots of people are saying this is probably up there with the conversation for greatest game of all time,” David enthuses, praising its graphics, scale, and George R.R. Martin’s storytelling. He ties it to NVIDIA’s impact on gaming’s storytelling potential.
Ben’s Carveout: Starting Strength by Mark Rippetoe, a weightlifting program. “It’s very fun to get back into… try and lift as heavy as you possibly can,” Ben says, noting its contrast to his endurance sports. He jokingly connects it to Jensen’s weightlifting habit since age nine.
Additional Notes
Episode Metadata:
Number: Season 10, Episode 5
Title: The Complete History & Strategy of Nvidia: Part 1
Duration: Approximately 3 hours (based on Ben and David’s mention of “six hours” across two parts)
Release Date: March 27, 2022 (per show notes)
Recording Date: March 18–19, 2022 (inferred from “a little over a week ago” on March 26, 2022)
Miscellaneous Insights:
Ben and David announce a May 4, 2022, in-person event in Seattle, calling it a “save-the-date card” for listeners.
They encourage joining the Acquired Slack (acquired.fm/slack) and rating the podcast on Spotify or Apple Podcasts.
The episode ends with a teaser for Part 2, covering NVIDIA’s machine learning pivot post-2006.
Contradictions with External Sources:
The episode claims NVIDIA was the “first dedicated graphics card company.” Web searches (e.g., Wikipedia’s GPU history) suggest companies like ATI (founded 1985) entered graphics earlier, though NVIDIA was among the first focused solely on 3D PC graphics. This is a minor overstatement.
Revenue figures ($158M in 1999, $2.8B in 2005) align with NVIDIA’s 10-K filings, but the 29% gross margin for 2004 is slightly off—NVIDIA’s 2004 10-K reports 32.6%. This discrepancy is minor and doesn’t alter the narrative.
The Keyhole investment is mentioned as 2006, but Keyhole was acquired by Google in 2004 (per Google’s blog). This is likely a timeline error by Ben and David, possibly conflating NVIDIA’s interest with a later event.
Related Episodes and Details: NVIDIA Part II (Season 10, Episode 6, 4/20/2022), NVIDIA Part III (Season 13, Episode 3, 9/5/2023), TSMC (Season 9, Episode 3, 9/6/2021).