Nvidia CEO Jensen Huang joked about something that could cost his biggest customers billions of dollars

• Nvidia's new Blackwell GPUs mean the older Hopper models are less useful, affecting cloud giants.
• Rapid tech advancements may force cloud giants to adjust asset depreciation, denting earnings.
• Amazon leads in adjusting server lifespan. Meta and Google could see profit hits.

Nvidia CEO Jensen Huang made a joke this week that his biggest customers probably won't find funny.

"I said before that when Blackwell starts shipping in volume, you couldn't give Hoppers away," he said at Nvidia's big AI conference Tuesday.

"There are circumstances where Hopper is fine," he added. "Not many."

He was talking about Nvidia's latest AI chip-and-server package, Blackwell. It's notably better than the previous version, Hopper, which came out in 2022.

Big cloud companies, such as Amazon, Microsoft, and Google, buy a ton of these GPU systems to train and run the giant models powering the generative AI revolution. Meta has also gone on a GPU spending spree in recent years.

These companies should be happy about an even more powerful GPU like Blackwell. It's generally great news for the AI community. But there's a problem, too.

AI obsolescence

When new technology like this improves at such a rapid pace, the previous versions become obsolete, or at least less useful, much faster.

This makes these assets less valuable, so the big cloud companies may have to adjust. This is done through depreciation, where the value of assets are reduced over time to reflect things like wear and tear and ultimately obsolescence. The faster the depreciation, the bigger the hit to earnings.

Ross Sandler, a top tech analyst at Barclays, warned investors on Friday that the big cloud companies and Meta will probably have to make these adjustments, which could significantly reduce profits.

"Hyperscalers are likely overstating earnings," he wrote.

Google and Meta did not respond to Business Insider's questions about this on Friday. Microsoft declined to comment.

Amazon takes the plunge first

Take the example of Amazon Web Services, the largest cloud provider. In February, it became the first to take the pain.

CFO Brian Olsavsky said on Amazon's earnings call last month that the company "observed an increased pace of technology development, particularly in the area of artificial intelligence and machine learning."

"As a result, we're decreasing the useful life for a subset of our servers and networking equipment from 6 years to 5 years, beginning in January 2025," Olsavsky said, adding that this will cut operating income this year by about $700 million.

Then, more bad news: Amazon "early-retired" some of its servers and network equipment, Olsavsky said, adding that this "accelerated depreciation" cost about $920 million and that the company expects it will decrease operating income in 2025 by about $600 million.

A much larger problem for others

Sandler, the Barclays analyst, included a striking chart in his research note on Friday. It showed the cost of renting H100 GPUs, which use Nvidia's older Hopper architecture. As you can see, the price has plummeted as the company's new, better Blackwell GPUs became more available.

"This could be a much larger problem at Meta and Google and other high-margin software companies," Sandler wrote.

For Meta, he estimated that a one-year reduction in the useful life of the company's servers would increase depreciation in 2026 by more than $5 billion and chop operating income by a similar amount.

For Google, a similar change would knock operating profit by $3.5 billion, Sandler estimated.

An important caveat: Just because one giant cloud provider has already made an adjustment like this, it doesn't mean the others will have to do exactly the same thing. Some companies might design their AI data centers differently, somehow making Nvidia GPU systems last longer or become less obsolete less quickly.

The time has come

When the generative AI boom was picking up steam in the summer of 2023, Bernstein analysts already started worrying about this depreciation.

"All those Nvidia GPUs have to be going somewhere. And just how quickly do these newer servers depreciate? We've heard some worrying timetables," they wrote in a note to investors at the time.

One Bernstein analyst, Mark Shmulik, discussed this with my colleague Eugene Kim.

"I'd imagine the tech companies are paying close attention to GPU useful life, but I wouldn't expect anyone to change their depreciation timetables just yet," he wrote in an email to BI at the time.

Now, that time has come.