Nvidia rides the AI wave to become the world’s most valuable public company

Nvidia has surpassed Microsoft to become the most valuable company in the world highlighting the transformative impact of artificial intelligence (AI) on the tech industry. The chipmaker’s market cap reached $3.34 trillion, outpacing Microsoft’s $3.32 trillion and Apple’s $3.27 trillion according to S&P Global. This dramatic rise represents the surging demand for Nvidia’s graphics processing units, considered as the crown jewels for powering AI systems.

Financially, Nvidia has been on a tear, posting a 262% increase in revenue and a 462% increase in y-o-y profit. This explosive growth is a testament to the soaring demand for AI technology and Nvidia’s ability to meet it.

Two years back, the company’s market capitalization was a little over $400 billion.

AI boom and Nvidia’s strategic dominance

This meteoric rise is driven by Nvidia’s dominance in producing chips that power artificial intelligence (AI) systems. Their processors are essential for generative AI technologies, such as OpenAI’s ChatGPT. The company’s unparalleled expertise in AI chip production has made it indispensable in the tech industry, fueling significant demand and skyrocketing stock prices.

“Nvidia’s strategic shift to AI chips cemented their global leadership, topping market caps,” said Prabhu Ram, head of the Industry Intelligence Group at CyberMedia Research.  “AI adoption’s early stages suggest this dominance is just the beginning.”

The chipmaker’s performance has been nothing short of spectacular. The company’s stock has surged 174% this year making it the best-performing asset on the S&P 500 index in 2023. This follows Nvidia’s entry to the $3 trillion club earlier this month.

The AI boom has significantly reshaped the tech industry with Nvidia at the forefront. Originally known for making GPUs for gaming, Nvidia’s chips have proven exceptionally well-suited for AI tasks.

“Nvidia, once known for its GPU computing capabilities in gaming and 3D graphics, has transformed into the cornerstone of the AI and cloud computing sectors, the fastest-growing areas as we enter the AI Super Cycle,” said Neil Shah, VP for research and partner at Counterpoint Research.

“Despite past struggles, such as missing out on the lucrative mobile market and facing setbacks in entering the CPU sector after the failed ARM acquisition, Nvidia has thrived.  The company’s early recognition of AI’s potential allowed it to optimize its GPUs for AI applications, securing around 70% of the AI chip market.”

Strategic evolution of Nvidia

Nvidia’s unmatched GPU performance has been the bedrock of AI, with their developer-friendly CUDA software creating a powerful ecosystem for critical AI tasks across industries, according to Ram. “As Industry 4.0 unfolds, Nvidia’s GPUs are positioned as a core resource, driving further AI adoption.”

The advent of generative AI techniques and models coincided perfectly with advancements in semiconductor technology, particularly with process nodes below 5nm. These advancements have enabled the production of high-density semiconductor chips capable of training billions of parameters and data points in a matter of days.

This created a flywheel effect for Nvidia, whose powerful GPUs can train these models in days rather than years, Shah said.

“The fundamental reason for Nvidia’s success is not just the chip but the ecosystem Nvidia has built via its programming language called CUDA launched in 2006/7, which unlocked the power of its chips to developers to leverage the parallel processing capabilities for more general computing workloads beyond graphics,” Shah said.

“Looking ahead, Nvidia’s software sales, particularly CUDA, are poised to become a much bigger driver of Nvidia’s sales mix in the next decade,” added Ram.

So, Nvidia’s success is not only due to its advanced GPU cores but also to its system-level software, and toolsets such as CUDA, which empower developers to achieve higher parallelism and efficiencies to run computing workloads vs CPUs. It is the capability, stickiness, and developer lock-in via CUDA that is driving the success of Nvidia.

“This is where Intel lost the opportunity as the entire industry because of complex AI workloads has moved from CPU to GPU-based processing,” added Shah.

Besides, Nvidia’s rise to the top underscores investor confidence in AI’s transformative potential. Both professional investment funds and individual retail investors have poured money into Nvidia’s shares, driving up the stock price even faster than the company’s revenue growth.

Since the launch of ChatGPT by OpenAI in late 2022, Nvidia’s stock price has gone up by approximately 700%.

“It will further rise and Nvidia will command its dominance in coming times too,” said Shah.

With the industry moving from LLM (large language based) to LVM (large vision model) and multimodal models in the future, according to Shah, the growth remains unprecedented for Nvidia and the entire AI ecosystem, especially with what’s in the pipeline for Nvidia in terms of its offerings.

“Given Nvidia’s unique position across the entire AI spectrum – chips, software, hardware, and networking – they would dominate the AI landscape of tomorrow,” Ram added.