What's up, NVIDIA? A Quick Look at Tech's Biggest Story
For a brief moment, last June 5th, Nvidia surpassed Apple as the world's second-most valuable company by market cap, next to Microsoft. At one point, the chips maker was valued by the market at $3.01 trillion, beating Apple, which finished the trading day valued at $3 trillion. The company announced it would split its stock ten-for-one effective June 7th and start trading at $120 after launch. So, what's up with Nvidia, and why has it been one of the stock market's hottest tech firms in recent months?
In recent months, Nvidia, a technology company based in Santa Clara, California, has regularly been the subject of tech and business headlines. One has to check Nvidia's stock performance in the next few months to see the company's impressive growth. The stock's surge culminated on June 5th, 2024, when the company passed the $3 trillion mark and surpassed Apple to become the second-largest-listed US company based on market value. Midway into 2023, Nvidia hurdled the $1 trillion mark, making it more valuable than Amazon and Alphabet.
Nvidia's rise didn't come overnight. The tech industry and stocks struggled for most of 2022. Experts and observers described it as a turbulent year, with the S&P ending the year down by nearly 20%. But tech stocks were the most affected, falling by more than 30%. Plenty of reasons were suggested for why tech stocks stumbled.
Some say the struggles were due to high inflation, higher interest rates, and uncertain economic conditions. There were tech layoffs, which increased by 649% in 2022, the highest recorded since the dot-com bubble. But in 2023, the tech industry rebounded despite a few more challenges, including record tech layoffs. And with attention shifting to generative AI, the tech industry rebounded, and the Nasdaq index, which is tech-heavy, ended the year up 43%.
One of the tech stocks that led the charge and continues to dominate the conversations is Nvidia. In 2023, the top tech stocks, including Alphabet, Tesla, and Apple, were up an average of 111%, but Nvidia was the bigger store, up 239% in 2023.
But what is Nvidia?
Nvidia is an American technology company based in Santa Clara, California, and incorporated in Delaware. It's a software company that designs and supplies graphics processing units (GPUs), application programming interfaces (APIs) for data science, and high-performing chips. The company dominates the artificial intelligence (AI) hardware and software market.
For decades, Advanced Micro Devices and Intel dominated the US chip market. However, these two companies focused on producing central processing units, for basic computing and software processes. Nvidia, on the other hand, invested in graphics processing units or GPUs. These chips deliver better images and are crucial in developing video and computer games.
In addition to this functionality, Nvidia's GPUs can also complete calculations in ways that regular CPUs cannot, making these chips more efficient and ready for advanced computing demands. Over time, the established chip maker tried to duplicate Nvidia's success, but since the Santa Clara-based company was first, it solidified its market position.
From remote work to the AI revolution
In an interview with CNBC, Nvidia co-founder and CEO Jensen Huang acknowledged that the company's success has been due to a combination of luck and skill. But it's also safe to say that the company has the right products and technology for the times. For example, during the pandemic, there was a massive shift to remote work and subsequent demand for data centers supporting cloud-based computing.
Also, since everyone was at home, a huge chunk of the population was into video games. These two crucial developments accelerated demand for Nvidia's products and boosted its revenues. According to the Wall Street Journal, Nvidia was the best-performing stock during the pandemic, driven by the strong demands for remote computing services and online gaming.
In addition to supplying chips and tech for online gaming, Nvidia has also benefitted from a huge demand for cloud computing infrastructure. As more companies shifted to remote work, Nvidia has partnered with Microsoft and Amazon to develop new services. Most of its chips were sold to data centers used to complete rapid calculations to power artificial intelligence.
Nvidia was also directly involved in addressing the global pandemic after it reported that it supplied DGX A100, a new line of high-performance computers, to the US Department of Energy's Argonne National Laboratory for COVID-19 research.
However, generative AI may be the biggest driver for Nvidia's growth in recent months. Nvidia currently controls more than 95% of the market for specialist AI chips, and according to experts, the company will continue to grow and dominate this segment. As mentioned, Nvidia's chips, GPUs, or accelerators, including generative AI, were designed for high performance.
These AI chips were initially designed for video games, but many AI companies now rely on these products. Nvidia uses parallel processing to break computations into smaller chunks, then distributing these among multiple cores in the chips. In short, Nvidia's GPUs can run faster calculations.
For example, in 2023, Nvidia announced the production of new chips called H100, which became the foundation for services like ChatGPT. Mr. Huang called the introduction of this chip the 'iPhone moment' for generative AI. Nvidia has also partnered with tech companies and AI startups that rely on its chips. Inflection AI is one of the startups that worked with Nvidia and used its H100 chips.
Just recently, Nvidia launched its latest artificial intelligence (AI) chip, which can perform 30x better than its predecessor. If the H100 AI chips made NVidia a multi-trillion-dollar company and the leader in AI, launching the new Blackwell B200 GPU and the GB200 'super chips' is expected to extend its dominance in the market.
In a company press release, developers say that the Blackwell GPU architecture boasts six transformative technologies for accelerated computing that can help unlock breakthroughs in electronic design, data processing, engineering simulation, quantum computing, and generative AI, all emerging industries catered by Nvidia.
According to CEO Jensen Huang, "Generative AI is the defining technology of our time," they added that Blackwell is the engine that will power this new industrial revolution. Huang added that by working with the most dynamic companies in the world, they can unlock the promise of AI for every industry.
What's ahead for Nvidia?
Experts and investors expect more growth for Nvidia moving forward. Thanks to its early investments in super chips and the growing demand for generative AI, the company is expected to lead the industry for years.
For some investors and traders, the initial question is: with its stock price dropping to about $120 per share Monday due to the company's 10-for-1 split, will its value return to $1,200? It's always difficult to put numbers on a company's potential growth. However, we can always see its drivers for growth and how a company will benefit.
Nvidia is in a unique position right now due to 'generative AI' fever and the quest of many companies and even governments to join the race to master generative AI. According to some reports, governments in Asia, Europe, and the Middle East are buying GPUs to build their own domestic computing facilities for AI.
Finally, there's the leadership of CEO Jensen Huang, which is the company's biggest investment and a risk, too, in case he leaves his post.
