Nvidia has soared to become the most valuable public company in the world, about two weeks after beating Apple to become the world’s second most valuable company.
On Tuesday, shares of Nvidia surged by 3.6%, propelling its market capitalization to an unprecedented $3.34 trillion. This surge allowed Nvidia to surpass Microsoft, now valued at $3.32 trillion.
Nvidia, a company once primarily known within the gaming community for its advanced graphics chips, hit a significant milestone by reaching a market cap of $3 trillion for the first time earlier this month, overtaking Apple.
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A Phenomenal Year for Nvidia: Thanks to AI
Nvidia’s stock has experienced an extraordinary rise, increasing by over 170% this year alone. This dramatic increase was further fueled by the company’s robust first-quarter earnings reported in May. The stock has multiplied more than ninefold since the end of 2022, a rise that coincided with the rapid advancement and adoption of generative artificial intelligence (AI).
Apple, on the other hand, saw its shares dip by 1.1% on Tuesday, resulting in a market value of $3.29 trillion.
Nvidia has captured approximately 80% of the market for AI chips used in data centers, a sector that has expanded rapidly. Major tech companies such as OpenAI, Microsoft, Alphabet, Amazon, and Meta have been acquiring these processors in large quantities to develop AI models and manage increasingly substantial workloads.
For the most recent quarter, Nvidia’s data center revenue skyrocketed by 427% from the previous year, reaching $22.6 billion. This revenue accounts for about 86% of the company’s total sales, underscoring its dominance in this critical market segment.
From Gaming Hardware to AI Powerhouse
Founded in 1991, Nvidia initially focused on producing hardware, specifically chips for gamers to enhance 3D gaming experiences. The company also explored other ventures such as cryptocurrency mining chips and cloud gaming subscriptions.
However, the last two years have seen Nvidia’s stock soar as the market recognized the company’s critical role in the AI revolution. This surge has significantly boosted the net worth of Nvidia’s co-founder and CEO, Jensen Huang, to approximately $117 billion, positioning him as the 11th wealthiest individual globally, according to Forbes.
Microsoft’s AI Integration
Microsoft has also benefited from the AI boom, with its shares rising by about 20% this year. The software giant has invested heavily in AI, notably by taking a substantial stake in OpenAI and incorporating the startup’s AI models into its flagship products like Office and Windows. Microsoft is one of the largest purchasers of Nvidia’s graphics processing units (GPUs), which are essential for its Azure cloud service. Recently, Microsoft launched a new generation of laptops designed to run its AI models, branded as Copilot+.
Nvidia’s Rapid Ascent
Nvidia’s rapid rise to the top is particularly notable given that it is a newcomer to the title of the most valuable U.S. company. For the past few years, Apple and Microsoft have vied for this position. Nvidia’s swift ascent has been so recent that it has not yet been added to the Dow Jones Industrial Average, a stock index comprising 30 of the most valuable U.S. companies.
Alongside its earnings announcement last month, Nvidia declared a 10-for-1 stock split, effective June 7. This stock split enhances Nvidia’s prospects of being included in the Dow, which is a price-weighted index, meaning companies with higher stock prices have a greater influence on the benchmark.
Broader Market Impact and Potential Challenges
The rapid appreciation of Nvidia’s stock is a reflection of broader market trends, particularly the growing importance of AI in various sectors. The company’s GPUs are not only central to gaming but have become indispensable in fields such as autonomous driving, scientific research, and deep learning. This diverse applicability has positioned Nvidia as a critical supplier in the tech industry’s AI revolution.
Despite its remarkable success, Nvidia faces significant challenges. The AI chip market is becoming increasingly competitive, with companies like AMD and Intel striving to capture market share. Additionally, regulatory scrutiny and geopolitical tensions could impact Nvidia’s global operations, particularly in key markets like China.