- By Natalie Sherman & Zoe Kleinman
- BBC news
image source, Getty Images
Chipmaker Nvidia has officially joined the elite club of US companies worth more than $1 trillion.
Shares of the California-based company topped $412 on Tuesday, up more than 30% from last week.
The announcement comes after the company shocked analysts by predicting a “demand spike” due to advances in artificial intelligence (AI).
Apple, Amazon, Alphabet, Microsoft and others are US publicly traded companies valued at over $1 trillion (£800 billion).
Founded in 1993, Nvidia was originally known for making the kind of computer chips that processed graphics, especially for computer games.
The company’s affable co-founder Jensen Huang tried it long before the AI revolution by investing in additional features for Nvidia chips, and the long game seems to have paid off.
Its hardware powers most AI applications today, and according to one report, the company holds 95% of the machine learning market.
ChatGPT, the chatbot that sparked the AI craze with its launch last year, was trained using 10,000 Nvidia graphics processing units (GPUs) clustered on Microsoft’s supercomputer.
Nvidia’s stock has more than doubled in the past 12 months as investors bet that AI will usher in the next wave of technological advancements and the company will profit.
Wedbush Securities analyst Dan Ives told investors last week that NVIDIA is on track to generate $11 billion in revenue (up about 50%) in the three months to August. We see NVIDIA as the core of the AI revolution.” Bigger than analysts expected.
But it may be difficult to live up to the promise of high valuations.
Nvidia grew rapidly during the pandemic, but overall revenue growth flattened out last year and profits halved.
There is also the question of whether Nvidia can keep up with demand, especially as rivals AMD and Intel scramble to develop their own products and upstarts rise.
The company also faces ethical questions, such as whether the AI products that make the chips should be scrutinized amid concerns swirling about AI’s impact on society.
At current prices, Nvidia boasts over eight times the market value of Intel. That’s despite Intel reporting more than $63 billion in revenue last year, compared to Nvidia’s $27 billion.
Gail Lord, head of global equities at Federated Hermes, said the magnitude of the recent surge in Nvidia’s stock was “a staggering surprise, even for tech optimists.”
“Artificial intelligence is the next fastest growing area, and we expect this to be just the beginning,” said Lord. “We know we can expect growth, but valuations can be hard to justify.”
Investor Kathy Wood, chief executive of technology champion Ark Invest, sold her Nvidia stake in January and missed out on any gains since.
she recently tweeted The company’s stock was “pre-priced ahead of its time,” he said. He said it would be a mistake for the market to think the company was the “sole AI player.”
So far, investors haven’t hesitated in their former favorite stocks.
Facebook owner Meta joined the Trillion Dollar Club in 2021, but pulled out after just a few months as the stock lost about three-quarters of its value. It is now valued at approximately $670 billion.
Telecom giant Cisco was also considered a member of the trillion-dollar club during the dot-com tech bubble of the late 1990s. But that bubble has burst and the company is now valued at around $200 billion.
