After early investments in artificial intelligence, the company is now the fifth most valuable in the US
On Tuesday, Nvidia’s valuation reached $1tn, positioning it as the fifth most valuable American company and one of the early beneficiaries of the AI hype. The chipmaker has long been a prominent player across various industries, but the current buzz surrounding generative AI has significantly elevated its profile and potential gains.
Established in 1993, Nvidia initially focused on designing GPUs for video games. With time, the company dominated the gaming sector and expanded its operations by repurposing its chips for automated driving systems, including those used in Tesla vehicles, as well as data centers. Presently, Nvidia’s chips play a crucial role in powering numerous systems that households worldwide interact with on a daily basis.
While competitors like Intel, Micron Technologies, and AMD were engaged in market battles for existing demand, particularly in data center power, Nvidia took a different path by investing in chips capable of driving various AI applications. This strategic move has given Nvidia a significant advantage, according to Dan Ives, Managing Director and Senior Equity Research Analyst at Wedbush Securities, who highlights the company’s unmatched scale, scope, and data integration capabilities.
During the May earnings call, Nvidia’s CEO and co-founder, Jensen Huang, revealed that the company projected revenue of $11 billion for the upcoming quarter, surpassing Wall Street’s expectations by $4 billion. This announcement generated enthusiasm among investors.
Experts in the industry believe that Nvidia’s profitability will continue to thrive for a considerable period. While companies like AMD, Micron, and Taiwan Semiconductor Manufacturing Company (TSMC) will also benefit from the growing market, Nvidia holds a significant advantage. As Dan Ives stated, Nvidia laid the foundation, and now other players are entering the market due to the surge in demand for chips driven by generative AI, such as ChatGPT. The demand for these chips is expanding in both enterprise and consumer sectors, and there is potential for further growth in autonomous self-driving technologies.
Previously, the demand for Nvidia chips driven by technological hype would diminish over time. For instance, Nvidia’s chips were popular among companies involved in the testing and development of self-driving cars. However, as these companies faced cost concerns and the desire for greater supply chain control, some decided to shift away from Nvidia chips. Notably, Tesla and General Motor’s Cruise opted to develop their own chip solutions.
While Dan Ives expects other companies to eventually develop their own chips, he believes it will take several years before they can match the scale and capabilities currently offered by Nvidia. He suggests that Nvidia will continue to serve as the foundational player in the field of AI for the immediate future. However, Ives speculates that within the next two to three years, there is a possibility that companies like Apple, Google, and potentially others may explore the development of their own chips to meet their specific needs.
Nvidia holds an advantage if companies like Google and Apple decide to enter the chip market for AI systems. This advantage stems from Nvidia’s established partnerships with various companies across industries. Unlike Google and Apple, Nvidia has earned trust as a chip supplier without a vested interest in taking over or controlling the consumer interface.
According to Dan Ives, Nvidia can be considered the “Switzerland of AI” because software companies have fewer concerns about trust since Nvidia has consistently maintained its position as a chip-focused player. On the other hand, big tech giants may be perceived as the “big bad wolf,” with potential concerns about their extensive reach and influence in enterprise operations.
