Nvidia’s $1 Trillion Valuation Explained – What Is The US Tech Giant Doing?

• Even if you’ve never heard of Nvidia, you’ll know quickly in the growth of AI.
• This is Money talks to Stephen Yiu of Blue Whale Growth Fund about Nvidia

You may have noticed that NVIDIA is making headlines around the world this week as it hits a $1 trillion (£800m) valuation, approaching that of online giant Amazon. yeah.

Technological breakthroughs sometimes cause certain companies to emerge out of nowhere and make their presence felt in the world of business, technology, and beyond. The same can be said for NVIDIA.

In This is Money, we look at the basics about Nvidia, including when it started, what it’s doing, why people are paying attention to it, and why its market cap has skyrocketed this week. .

We also interviewed Steven Yui, principal manager of the Blue Whale Growth Fund, exclusively for his take on US companies and their prospects.

What is NVIDIA?

California-based Nvidia was founded in 1993 by American-Taiwanese engineers Jensen Huang, Chris Malakowski, and Curtis Priem, “with the vision of bringing 3D graphics to the gaming and multimedia markets.” .

In 1999, he invented the graphics processing unit (GPU) to revolutionize the world of computing.

Back in 2012, the company claims to have “brought into the era of modern AI” by spearheading the growth of AlexNet neural networks.

What does NVIDIA do?

Nvidia is a chip manufacturer. The company makes graphics cards and accounts for about 80% of all GPUs produced worldwide, according to Reuters.

What are GPUs?

Large computers that process data and generate AI run on powerful chips called graphics processing units (GPUs).

GPUs are designed to efficiently handle certain types of mathematics involved in AI computing.

By contrast, general-purpose central processing units from companies such as Intel typically handle a wide range of computing tasks but are less efficient, he said.

Nifty chips made by Nvidia are used to handle the mathematics needed for artificial intelligence (AI) computing.

For example, OpenAI’s ChatGPT was built using thousands of Nvidia AI-optimized GPUs.

Elon Musk also reportedly secured a GPU from Nvidia for his AI startup.

So Nvidia, known for chips used in video games, has turned to the data center market in recent years.

Its specialization has evolved to incorporate the technology needed for the rapid development of AI.

Who are Nvidia’s competitors?

Nvidia’s main competitors include Advanced Micro Devices and AI chips manufactured in-house by companies such as Amazon, Google and Meta Platforms.

Why is generative AI so hard to ignore right now?

ChatGPT, a viral chatbot, has made generative AI the buzzword of 2023.

The technology, which was announced last year, uses vast amounts of existing data to create new content ranging from poetry to images to computer code.

The biggest players in the space, Microsoft and Alphabet-owned Google, believe generative AI can change the way work is done.

Both companies have raced to add the technology to their search engines and productivity software in an effort to dominate the industry.

Goldman Sachs experts believe US investment in AI could approach 1% of the country’s economic output by 2030.

How did Nvidia perform?

Nvidia’s business expanded rapidly during the pandemic, when games became popular, cloud adoption skyrocketed, and cryptocurrency enthusiasts turned to the company’s chips for mining coins.

In the fiscal year ending Jan. 29, the data center chip business accounted for more than half of the company’s revenue.

But in 2022, the group has been hit by slowing demand for gaming chips and a failed attempt to buy UK-based chip designer Arm from Japan’s SoftBank.

A sharp rise in interest rate expectations and a supply chain crisis triggered by Russia’s invasion of Ukraine also took a toll on Nvidia’s fortunes last year, said Steven Yui, chief manager of the Blue Whale Fund, in This Is told the manager.

But just recently, NVIDIA announced that it would hit about $11 billion in revenue, or £9 billion, in the three months to July, beating Wall Street’s forecast of about $7.2 billion.

The company expects demand for its computer chips to grow to meet the needs of AI products like ChatGPT.

What happened to Nvidia this week?

Nvidia’s latest positive outlook has had a big impact on the company’s stock price and market cap this week.

Nvidia’s market capitalization surged to $1 trillion on Tuesday as its stock continued to climb after a strong earnings report forced Wall Street to reassess the potential gains for chip makers from the AI ​​boom. .

The company posted one of the biggest one-day gains in US corporate history last week, adding more than $186 billion (£150 billion) to its market cap in Thursday’s trading alone. The company’s stock traded at $406 on Tuesday.

Nvidia has a market capitalization of $1 trillion, or £807 billion, making it the fifth most valuable US company after Apple, Microsoft, Alphabet and Amazon. Taiwan Semiconductor Manufacturing, the world’s second largest chip maker, is valued at around $533 million, or £431 billion.

Other large companies with a market value of over £1 trillion include Apple and Saudi Aramco.

How do fund managers rate Nvidia?

This week, the Blue Whale Growth Fund, backed by Peter Hargreaves, released a memo on the top 10 tech companies. The fund has backed Nvidia for some time.

About Nvidia: “You may not have heard of Nvidia, but there are many things that NVIDIA’s chips enable, such as video recommendations on TikTok, grammar checks in Word online, feed recommendations, and more. It is likely that you are already a regular user of one of the services,” the note said. See featured ads on Pinterest, or on Facebook and Instagram.

Nvidia’s chips speed up the computationally intensive parts of your application.

“Accelerators were initially used to power desktop computer graphics, but as Moore’s Law slowed, accelerated computing emerged as the solution, enabling researchers to explore AI, climate simulation, drug discovery, Now we can continue to push the boundaries in areas like ray tracing, robotics, and more.” ”

Here’s Money’s exclusive interview with Stephen Yiu, Principal Manager of the Blue Whale Growth Fund, to hear what he thinks about NVIDIA and what the outlook looks like.

Importantly, Yiu said NVIDIA has “further upside” in terms of market value and future potential. He believes the company will “be more profitable in the next few years.”

Although the market remains uncertain and NVIDIA’s stock price may fluctuate over the next six months, Yiu believes NVIDIA’s long-term outlook over the next three to five years remains promising.

He said Nvidia’s market value could well exceed $1 trillion in the long run, especially now that concrete rather than conceptual developments in AI like ChatGPT are emerging. says.

“We are not selling. We believe Nvidia’s valuation remains attractive and we are waiting to see if the valuation becomes even more attractive.”

Nvidia’s potential may be tempting, but it’s important to do your research on the company you’re considering investing in.

Remember that stock prices, valuations and market trends can change at any time and, as with any investment, be careful not to invest more than you can afford to lose.

How do you invest?

Nvidia has become one of the hottest growth stocks among investors, alongside other tech giants like Google-owned Alphabet, Microsoft and Tesla.

A recent study by CMC Markets revealed that NVIDIA is among the top five stocks owned by all generations, including baby boomers.

If you want to buy Nvidia stock, you’ll need to find an investment platform with access to the Nasdaq exchange where NVIDIA is listed, such as Hargreaves Lansdown or Freetrade.

However, be aware of additional costs when investing in US companies. Bestinvest recently announced that customers can now trade U.S. stocks without the burden of additional stock trading fees.

A number of top technology funds also have Nvidia in their top 10 holdings.

Among them is the Polar Cap Technology Fund, one of the largest technology funds holding 4.6% of Nvidia’s portfolio. T Rowe Price Global Technology Fund also owns about 6% of the fund’s shares.

If you prefer passive options, Vanguard Growth ETFs track the biggest growth stocks, including NVIDIA.