Nvidia temporarily became a $1 trillion company on Tuesday morning, with its rising valuation fueled by tech companies big and small racing to add generative artificial intelligence tools to their products. AI tools made up the vast bulk of recent Google I/O and Microsoft Build presentations, and Nvidia’s chips make it a key supplier for companies trying to build something with AI.
Its valuation pushed past the trillion-dollar benchmark as trading opened today at just over $405 per share, putting it in the rarified air previously occupied by only a few large companies such as Apple and Microsoft after they surpassed the significant mark in August 2018 and August 2019, respectively. Amazon and Google are the other tech stocks in the club, and Meta is a former member.
When the market closed on Monday, the share price had fallen back to $401.11 after peaking at about $419. That gives Nvidia’s stock a value of “just” $992 billion or so, taking it out of the $1 trillion club, for now.
The last quarterly earnings report from Nvidia noted over $2 billion in profit in three months. This latest push comes after Nvidia’s business boomed early in the pandemic during a GPU shortage while they were in demand for PC gaming and cryptocurrency mining before those markets fell back throughout 2022.
The news lifted the stock, adding roughly $184 billion in market value in a single day on Thursday.
And the rally has kept going. As of Tuesday’s close, Nvidia shares are having their best three-day stretch in more than two decades, according to Dow Jones Market Data.
Additional enthusiasm has been generated by a series of announcements made by Nvidia at the COMPUTEX conference in Taipei, including a new supercomputer Nvidia’s New AI Supercomputer Is a Game Changer. Google, Meta, and Microsoft Will Be First Users. Nvidia said Google, Meta, and Microsoft would be among the first companies to get access to its DGX GH200 supercomputer. Continue reading that is expected to enable the next wave of generative AI applications.
It isn’t uncommon for newly minted trillion-dollar companies to lose their status after entering the elusive trillion-dollar club. Both Tesla TSLA +4.14% (TSLA) and Facebook -parent Meta Platforms (META) have crossed the threshold, and have since dropped in value. Apple AAPL +1.07% (AAPL), Amazon . com (AMZN), Google-parent Alphabet (GOOGL), and Microsoft (MSFT) each fell after hitting the level, and have since regained their market values. Nvidia appears to be no different from these other examples, with its market cap just $10 billion shy of the $1 trillion mark based on Tuesday’s close.
Nvidia stock isn’t cheap, either: It’s the third-most expensive stock to cross the $1 trillion line. Shares trade for about 51 times estimated 2024 calendar year earnings. By comparison, Tesla traded north of 140 times when it crossed and Apple traded at a relatively meager 17 times when it first crossed.
Can the stock deliver more upside?
Nvidia’s guidance has upstaged analysts’ expectations by a huge margin, so it wouldn’t be surprising to see the stock sustain its remarkable rally. At the same time, investors shouldn’t forget that the company’s primary data center catalyst generative AI is just getting started. Polaris Market Research estimates that the generative AI market could clock annual growth of 34% over the next decade, and hit $200 billion in annual revenue by 2032.
Nvidia management remarked on the earnings call that “generative AI is driving exponential growth in compute requirements and a fast transition to Nvidia accelerated computing.” So the rapid growth of the generative AI space should drive greater demand for Nvidia’s GPUs, as they are going to play a critical role in the proliferation of this technology.
Moreover, the demand for chips capable of tackling AI workloads is expected to grow from just under $17 billion a year in 2022 to more than $227 billion annually in 2032. This suggests there’s still a lot of room for growth in Nvidia’s data center business given its terrific share of the market for AI chips. Not surprisingly, analysts have rapidly raised their growth expectations from Nvidia.
Nvidia’s graphics processing units, or GPUs, are critical to generative AI platforms like OpenAI’s ChatGPT and Google’s Bard. The company has historically been a leader in the so-called discrete or stand-alone GPU field, but until recently, many consumers thought of GPUs as primarily used for intensive gaming.
The advent of crypto mining and AI has upended that belief, and GPU manufacturers and suppliers, including Nvidia, Advanced Micro Devices and Taiwan Semiconductor Manufacturing, have seen share prices rise significantly over the last few months.
By contrast, Intel, which struggled with inventory issues and development challenges, has been historically focused on the chip market for central processing units, or CPUs. The company hasn’t shared, comparatively, in the wave of investor interest.
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