Microsoft and Apple are out. The stock market has a new champion.
Nvidia on Tuesday overtook two of the tech industry's biggest names to become the world's most valuable publicly traded company, according to data from S&P Global. The company's rise is being driven by a boom in generative artificial intelligence and surging demand for its chips, or graphics processing units, that enable the creation of AI systems.
Nvidia's growth spurt is one of the fastest in market history. Just two years ago, the company's market cap was over $400 million. It has now gone from $1 trillion to more than $3 trillion in the space of a year.
Nvidia shares rose 3.6% on Tuesday, giving it a market capitalization of $3.34 trillion. Microsoft and Apple both fell, lagging the Silicon Valley chipmaker.
Nvidia's rise is a testament to how artificial intelligence has upended the world's largest companies. The rise of this powerful technology first propelled Microsoft to the top of the market cap in January, knocking Apple off its feet before Nvidia took the throne. Last week, Apple also got into the AI game, announcing that it would be integrating the technology into its products, including the iPhone, this fall.
Years before other major chip companies, Nvidia CEO Jensen Huang was convinced that GPUs would be essential to building artificial intelligence, and he aligned his company for what he believed would be the next big thing in technology.
His big bet is paying off: By one measure, Nvidia controls more than 80% of the market for chips used in AI systems. Nvidia's largest customers, constantly vying for orders for the chips that run the computers in their giant data centers, are developing their own AI chips to avoid relying too much on any one supplier.
“Nobody else had fully understood or appreciated this,” said Daniel Newman, CEO of technology research firm Futurum Group. “They saw a trend, they built around it and they enabled the market. They can essentially charge whatever they want.”
Nvidia's rise has made the 61-year-old Huang a celebrity in tech circles. After a computing conference in Taiwan earlier this month, he was surrounded by autograph-seekers, including a woman who asked to have her breast autographed.
The company's rise is reminiscent of dot-com era giants like Cisco and Juniper Networks, which made equipment that runs the internet's communications networks. Cisco's stock price rose more than 1,000-fold between its 1990 IPO and 2000, when it briefly became the world's most valuable company.
The speed at which Nvidia's value has grown is astonishing: Apple surpassed $1 trillion in market cap in August 2018 and became a $3 trillion company last June. It took Microsoft nearly five years to go from $1 trillion to $3 trillion.
Nvidia investors are betting on the company's potential rather than its current profits. Microsoft and Apple each made more than $21 billion in profits in the three months through March. Nvidia made $14.88 billion in profits in its most recent quarter through April, up more than 600% from a year ago.
“The numbers are growing exponentially and people are worried, 'Is this sustainable?'” said Stacey Rasgon, an analyst at Bernstein Research. “If we don't see the benefits of AI, it's all going to collapse.”
According to S&P Dow Jones Indices, just 12 companies have led the S&P 500 Index by market capitalization since the index was created in 1926: AT&T, Apple, Cisco, DuPont, ExxonMobil, General Electric, General Motors, IBM, Microsoft, Philip Morris, Walmart, and currently Nvidia.
Nvidia's rise has been driven by the company's ability to consistently beat Wall Street expectations. Revenue tripled to $26 billion last quarter from the same period a year ago. The company also expects revenue to double this quarter.
Nvidia sells everything from the chips to the software needed to build AI systems with them to the supercomputers themselves. Machines made of 35,000 parts and equipped with Nvidia's GPUs sell for more than $250,000. Any new supercomputers that Nvidia brings to market could sell for more than $1 million, Rasgon said.
“System costs are rising, but performance per dollar is improving with each generation, and that's why customers keep buying,” Rasgon said.
Wall Street is watching closely for signs of a slowdown: Microsoft, Metadata, Google and Amazon are all developing their own chips that can be used for AI, and traditional chip rivals such as Advanced Micro Devices and Intel are trying to eat into Nvidia's business with their own AI processors.
But Huang thinks it will take time to catch up with Nvidia, which has a decade-long lead and has cultivated a large community of AI programmers who favor its technology.
“We are fundamentally changing how computers work and what they can do,” Huang said on a conference call with analysts in May. “The next industrial revolution has begun.”
