Nvidia, a leading semiconductor company, is on the brink of surpassing Apple to become the world’s second-most valuable company, according to Reuters’ analysis.
This shift stems from the growing influence of artificial intelligence (AI) technologies on the market. Nvidia’s high-end chips, essential for virtually all AI applications such as OpenAI’s ChatGPT, have significantly boosted the company’s valuation, nearly tripling its worth over the past year to $2.68 trillion.
Nvidia’s rapid ascent in the stock market can be attributed to its strategic alignment with major technological trends. Starting with gaming demand, followed by the cryptocurrency boom, and now the AI surge, Nvidia has consistently matched innovation with market demand. This has resulted in explosive growth for the company.
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“It is certainly notable because Apple has been so dominant for so long, especially on the growth and innovation front. Recently though, Apple’s innovation curve seems to have flattened, showing slower future growth,” said Brian Mulberry, client portfolio manager at Zacks Investment Management.
“On the other hand, Nvidia has been able to catch wave upon wave of growth. Beginning with gaming demand, then crypto and now AI, they have been able to perfectly match innovation with demand and that equals explosive growth,” he added.
In contrast, Apple has faced significant challenges. The tech giant, which ceded its No. 1 spot to Microsoft earlier this year, is grappling with weak demand for its iPhones and stiff competition in China. Apple’s valuation currently stands at $2.92 trillion, but the company’s innovation trajectory has slowed, impacting its growth prospects.
Nvidia’s influence on the stock market has been profound. The company is heavily weighted on the S&P 500 and the Nasdaq, playing a crucial role in driving U.S. stocks to record highs. It accounted for more than a third of the S&P 500’s gains this year, underscoring its pivotal role in the market.
Nvidia also set a record by becoming the fastest company to grow from $1 trillion to $2 trillion in 2024, outpacing giants like Amazon, Google-parent Alphabet, and Saudi Aramco. This rapid growth is fueled by Nvidia’s consistent ability to exceed Wall Street’s expectations for revenue and profit. The demand for its graphic processors has far outstripped supply as major tech companies race to integrate AI into their systems.
Despite the surge in its stock price, Nvidia’s forward earnings valuation has fallen, trading at 37 times forward earnings compared to 48 times a year ago, according to LSEG data. This indicates a sharp increase in analysts’ earnings estimates, reflecting strong confidence in Nvidia’s future performance.
Nvidia’s popularity extends to the derivatives market as well. The GraniteShares 2x Long NVDA Daily ETF, which tracks twice the daily percentage change in Nvidia, is the largest single-stock ETF. The fund recently clocked $1 billion in daily turnover for the first time ahead of Nvidia’s results, and its total net assets hit a record $2.82 billion this week, according to Lipper data.
Options traders are similarly bullish. Nvidia’s volumes, particularly for call options, have picked up in recent sessions following the surge in its stock price. Thursday marked the fifth straight session where more than a million Nvidia call options changed hands, the longest such streak in the stock’s history, according to a Reuters analysis of Trade Alert data.
Nvidia’s trajectory highlights the transformative impact of AI on the tech industry. The company’s ability to innovate and meet market demands positions it well to continue its upward momentum. As AI applications become more pervasive, Nvidia’s high-end chips will remain in high demand, ensuring sustained growth and market dominance.
Meanwhile, Apple faces the challenge of reinvigorating its innovation pipeline and navigating a highly competitive market. The company’s ability to adapt and innovate will be critical in maintaining its position among the world’s top companies.