Why a GPU Futures Market is Unlikely to Develop
GPUs share superificial qualities with commodities, but this comparison only goes so far
Introduction
Several years ago, during one of the bitcoin booms, I had coffee with an old friend who worked at a big investment bank. We got to discussing bitcoin mining, and the supply chain issues that were plaguing both the supply and demand side of the GPU market. Bitcoin miners couldn’t get their hands on enough GPUs, and manufacturers couldn’t create enough supply. Prices, as one would expect, spiked. Why, we idly mused, wasn’t there a GPU futures market to allow one to hedge this price volatility?
With the explosion of demand for GPUs, it might seem natural to ask whether GPUs could be treated like traditional commodities. After all, we have futures markets for raw materials like aluminum, wheat, and crude oil to help businesses hedge against price volatility. Could there be a similar market for GPUs, with contracts locking in future prices, thus managing risk for manufacturers and large-scale consumers?
Futures are standardized, exchange-traded derivatives that commodities producers and consumers use to smooth out price volatility1. They are, in other words, hedging instruments. In some sense, GPUs look a lot like commodities: they are inputs used to create other things, including bitcoin and other mined cryptocurrencies, and, more recently, intelligence. A french fry producer takes in raw commodity inputs—potatoes, salt, oil—and sells the output, french fries, to end consumers. In fact, Ray Dalio got his start on Wall St. by creating a customized hedging instrument for McDonalds.
To determine whether a futures market for GPUs makes sense, we need to analyze what makes GPUs both similar to and different from traditional commodities. Ultimately, the differences suggest that a GPU futures market is unlikely to emerge. What follows is first an exploration of their similarities, followed by a substantive analysis of how the fundamental differences between GPUs and commodities suggests that no futures market will develop for GPUs.
The Appeal of Treating GPUs as Commodities
On the surface, GPUs seem to share several characteristics with traditional commodities. First, they are mass-produced, standardized products. Like barrels of crude oil or bushels of wheat, each unit of a specific GPU model (e.g., NVIDIA’s RTX 3080) is manufactured to perform in roughly the same way. This mass production makes GPUs fungible within the same model, allowing them to be used interchangeably, which is a core trait of any commodity.
Moreover, GPUs experience price volatility much like traditional commodities. Prices spike due to sudden surges in demand, such as during cryptocurrency mining booms or AI advancements, and they fall during periods of oversupply or when new models render older units obsolete. This price fluctuation makes hedging against future price movements an appealing concept, as it could stabilize costs for buyers and guarantee sales for manufacturers.
Why GPUs are not True Commodities
Despite superficial similarities between traditional commodities and GPUs, the concept of a GPU futures market falls apart under closer examination.
Rapid Technological Obsolescence
One of the primary differences between GPUs and traditional commodities lies in the pace of technological change. Commodities like wheat or oil do not face obsolescence2. A bushel of wheat has roughly the same value and utility today as it did a year ago. In contrast, GPUs are driven by innovation cycles that quickly render them obsolete. New models with better performance, efficiency, and capabilities replace previous versions frequently. By the time a futures contract on a GPU model matures, that particular GPU might be outdated, significantly complicating the idea of standardizing futures.
The rapid pace of technological obsolescence means that any long-term contract for GPUs would carry significant risk regarding the relevance and desirability of the product upon delivery. Unlike traditional commodities, which retain their value over time, GPUs become outdated as soon as a newer model hits the market, reducing both their practical utility and their value. This makes it nearly impossible to set a stadard price for a future date, as the product itself is constantly changing.
Moreover, the GPU market moves at a speed dictated by Moore’s Law, with improvements in processing power, energy efficiency, and new feature sets every year. The constant state of technological evolution creates significant unpredictability. A futures market thrives on predictability and consistency, which qualities are not associated with the GPU market. The introduction of new generations of GPUs can make contracts based on previous models irrelevant or unprofitable, making hedging through a futures market impractical for both buyers and sellers.
Lack of Standardization and True Fungibility
Commodities thrive on standardization3. Every ounce of gold or bushel of wheat is essentially identical, allowing for seamless trading. GPUs, on the other hand, are not truly fungible across different models and generations. The market is fragmented by different product specifications, performance metrics, and architectures. Each GPU model is suited for different kinds of tasks—some are geared towards gaming, while others are optimized for artificial intelligence or rendering workloads. This diversity makes it challenging to create standardized contracts that would be required for a functioning futures market.
Unlike commodities that are easy to grade and classify, GPUs come in many varieties, each with different technical specifications and performance attributes. For example, an RTX 3080 is fundamentally different from an RTX 3070 or a Radeon RX 6800, not only in terms of processing power but also in terms of intended use cases. Different workloads—be it machine learning, gaming, or scientific computing—require different types of GPUs, which means that even within the GPU market, the interchangeability that commodities require simply isn’t there.
Additionally, GPUs are produced in different fabrication facilities, and there can be subtle differences between units of the same model due to manufacturing variations. These differences might not matter for individual consumers, but they are highly significant when GPUs are used at an industrial scale, where reliability and performance consistency are key. This makes the task of creating a uniform and standardized futures contract for GPUs fraught with complications.
Proprietary Technology and Intellectual Property
Traditional commodities are generally freely produced and traded without intellectual property constraints. GPUs, however, are highly complex products governed by patents and proprietary technologies. Companies like NVIDIA and AMD not only manufacture GPUs but also maintain proprietary control over their software ecosystems, firmware, and support systems. The legal and technological complexities around intellectual property make GPUs fundamentally different from the typical commodity, which can be freely bought and sold without licensing issues.
GPUs are deeply tied to proprietary software stacks, drivers, and firmware that are essential for their operation. This is in stark contrast to traditional commodities, which have intrinsic value independent of any supporting infrastructure. The reliance on proprietary technologies introduces an additional layer of complexity that makes the commoditization of GPUs problematic.
Furthermore, companies like NVIDIA and AMD have significant control over the production and distribution of their GPUs. They can dictate who gets access to the latest technology, when it becomes available, and at what price. This central control is antithetical to the decentralized nature of traditional commodity markets, where numerous producers contribute to a global supply that no single entity can fully control. The proprietary nature of GPU technology and the control exerted by manufacturers make the creation of a free and open futures market highly unlikely.
Market Structure and Supply Chain Complexity
The market for GPUs is heavily dominated by just a few companies, namely NVIDIA and AMD. This is vastly different from commodity markets, which usually have many producers, creating a competitive environment that stabilizes prices. In the GPU space, these manufacturers have considerable control over supply pricing, and distribution, creating an environment where price discovery is not as transparent or open as it is with traditional commodities.
Moreover, the GPU supply chain is complex, involving advanced semiconductor fabrication, specialized components, and precise logistics. Any disruption—such as geopolitical events or semiconductor shortages—can have a significant impact on GPU availability and pricing, leading to unpredictability that would make standardized futures trading highly challenging.
The semiconductor fabrication process, which is at the heart of GPU production, is also extraordinarily capital-intensive and monopolized by a few key players like TSMC and Samsung. Any disruption in these supply chains—whether from natural disasters, trade wars, or logistical issues—can create massive ripple effects that alter the availability and cost of GPUs. This level of dependency on a few critical supply nodes adds to the uncertainty and makes it difficult to create a reliable futures market. Unlike traditional commodities that rely on a diverse set of producers and suppliers, GPUs are part of a more fragile and intricate ecosystem.
Practical Challenges for Hedging and GPU Futures
Given the differences discussed above, hedging GPU-related risks using futures contracts becomes impractical. Futures markets function best when there is predictability in the supply, demand, and utility of the underlying asset. The rapid pace of GPU innovation, the concentration of producers, the proprietary nature of the technology, and the market dynamics make it exceedingly difficult to establish such predictability.
Instead of futures, companies looking to manage GPU pricing risks tend to rely on long-term procurement contracts with manufacturers, cloud-based services4, or rental models5. Cloud computing, in particular, provides access to GPU resources on-demand, offering businesses the flexibility to scale without worrying about the volatility of hardware prices or the threat of obsolescence. For many companies, these options provide a more practical way to mitigate risk compared to the complexities that a GPU futures market would introduce.
Additionally, companies are increasingly turning to usage-based models, where they pay only for the computational power they need. This approach minimizes the need to own and maintain large inventories of GPUs, thus avoiding the issues related to price volatility and technological obsolescence. Cloud providers like AWS, Google Cloud, and Microsoft Azure offer GPU resources that can be scaled up or down based on real-time needs, making them a more efficient option for businesses facing uncertain or fluctuating demand.
Another alternative is co-location and hosting services, where companies can place their own GPU hardware in a third-party data center to reduce the costs associated with maintaining infrastructure. These models offer a hybrid approach that provides the flexibility of cloud services while still allowing businesses to benefit from owning high-performance GPUs without directly bearing the risks associated with price volatility.
Conclusion: GPUs are a Unique Market
While GPUs and traditional commodities like aluminum, wheat, or crude oil share some superficial similarities—such as mass production and price volatility—the differences are too fundamental to ignore. GPUs are not fungible in the same way as traditional commodities, they face rapid obsolescence, and they are subject to proprietary constraints and a concentrated market structure. These characteristics make the idea of a GPU futures market impractical.
Hedging GPU-related risks, therefore, requires approaches tailored to the unique nature of the GPU market. Options include direct agreements with manufacturers, the use of cloud-based computational services, or diversification into other technologies. Usage-based and co-location models provide flexibility that aligns more closely with the needs of modern businesses, offering scalable solutions without the need for speculative futures contracts.
The GPU market’s combination of cutting-edge technology, rapid innovation cycles, proprietary control, and concentrated production make it rather unique and complex. These factors require tailored solutions for risk management and procurement that are fundamentally different from those used for traditional commodities. Understanding these nuances will be key for businesses and investors as they navigate the future of computational power and its role in a data-driven world.
Forwards are bespoke forms of futures: non-standardized, not traded on exchanges, and customized between two parties. These two parties are typically large, sophisticated institutional investors. Futures, on the other hand, being exchange-traded and standardized, are in theory accessible to any market participant who opens a futures trading account with a broker.
Yes, it is in theory possible that renewable energy like solar and wind will eventually obsolesce oil. Nonetheless, to environmentalists’ chagrin, that future is not yet here.
It’s worth noting that, though oil is commonly viewed as a commodity, it is not fungible in the way that gold or wheat are fungible. Different oil wells produce different grades of oil—there is light crude, heavy crude, sweet crude, sour crude, etc.
Google Cloud, Amazon Web Services, and Microsoft Azure are three of the biggest cloud computing platforms.