NVIDIA is worth over $3 trillion and has approximately 30,000 employees. The company could be quickly overtaken by the competition, though, if all of the employees quit. No problem, right? Just pay every employee $1 million per year for the next ten years and nobody will quit. That would cost only $300 billion. Most of NVIDIA’s employees are in California where the personal income tax rate on successful people is close to 50 percent (federal plus state). Each employee would realize only $500,000 in after-tax spending power if paid $1 million pre-tax. Suppose that the average NVIDIA employee is already worth $20 million. He/she/ze/they wouldn’t rationally keep coming to work every day for the next ten years unless spending power could be roughly doubled. That would require giving every employee about $40 million in pre-tax compensation over the next ten years (presumably most of this would be via stock grants that would dilute existing public investors). That’s a $1.2 trillion cost to prevent employees from “calling in rich”.
Does the fact that NVIDIA has already made nearly all of its employees so rich that they can afford to retire comfortably (for some, moving away from California might be necessary) impair NVIDIA’s likely long-term value to outside investors?
Who could conceivably overtake NVIDIA, you might ask? The Intel Gaudi line doesn’t seem to have caught on. Amazon (“Trainium”), Google (“TPU”), and some startups are all going after the H100 market that is responsible for most of NVIDIA’s revenue (the desktop gamers have been reduced to insignificance). Here’s a story on Google’s potential self-sufficiency:
Amazon and Google don’t sell chips, but instead sell time on their chips via their cloud services which is, presumably, what most customers want. So NVIDIA can’t be complacent and let its employees wander off to either pleasant retirements or startups where there is a realistic chance of making significant money.
Maybe this overhanging need to pay already-rich employees crazy high compensation is priced into NVIDIA stock, just as my Church of Efficient Markets pastor says. Yet I have doubts…
I think you meant $1 trillion which is real money indeed.
Fixed. Thanks. A billion here and a billion there and pretty soon you’re talking about real money!
Maybe some of the 30,000 are actually not unicorns and are fungible. Does it include janitors, cafeteria workers, HR, accounting, …?
nvting idia designs the prevalent printing presses fordigital coinage. Why don’t they just pay employees in self-produced digital currency. And isn’t AI gonna make those employees superfluous?
And what about the greatest band you never heard of?
https://www.youtube.com/watch?v=8voRQY13HuE
tom price is dead, is there enough internet to bring him back to life?
NVidia could just use the same tactic as Amazon: issue 7% more new shares each year, and use they to pay employee. It’s known as “letting Wall Street pay your employees”. The market never seems to notice, share prices keep going up?
Lions have doubts about how rich the top tier employees really are. They’re definitely not all making the top income. There just aren’t that many MIT master’s degrees in sub micron design. With mandatory RTO, most are either burning tons of money on housing or transportation. If they’re burning $5k on rent or $50k on cars for that commute, the moment they lose their jobs, they’re finished.
I assure you that the stock compensation has not been handed out in such an egalitarian fashion. The worker bees aren’t (post-Biden California) rich and the key employees and managers are going to be awash in stock. But yeah, it seems unsustainable. Regression to the mean and diminishing returns suggest that NVDA won’t keep performing like this forever.