Nvidia (NASDAQ: NVDA) stock made waves recently, becoming just the third U.S. public company to surpass the astounding $3 trillion market cap milestone. The first to achieve this feat was Apple in January 2022, followed by Microsoft in January 2024. With a growing cohort of investors predicting Nvidia will eventually dethrone Microsoft in market cap supremacy, the chipmaker’s trajectory is under intense scrutiny.
Let’s dissect the factors propelling Nvidia’s stock to stratospheric levels and outline what lies ahead for investors.
The Nvidia GB200 Grace Blackwell Superchip. Image source: Nvidia.
Nvidia: Leading the Chipmaker Constellation
Nvidia has been ablaze in recent years as the wildfire of interest in artificial intelligence (AI) grew exponentially. Yet, a retrospective glance reveals how sentiments once turned sharply against Nvidia not long ago. Between November 2021 and October 2022, Nvidia shares plummeted over 66% amid macroeconomic challenges. Gamers clung to aging graphics cards, while businesses hesitated to upgrade their data infrastructure.
As the saying goes, “This too shall pass.” The dawn of generative AI in early 2023 heralded a technological revolution, illuminating Nvidia’s pivotal role in the AI renaissance.
Generative AI marks a paradigm leap in artificial intelligence, introducing the capacity to craft original content in unprecedented ways. From poetry and music composition to artwork generation, this novel technology captivated technologists, envisioning its potential in enhancing productivity across various realms. Nvidia’s supremacy lies in its GPUs’ parallel processing prowess, uniquely adept at breaking down mammoth computational tasks into manageable fragments. This fortuitous positioning primed Nvidia for the generative AI surge.
However, fueling these AI models’ computational complexity are trillions of training data bits — or parameters — necessitating thousands of GPUs. To illustrate, training OpenAI’s GPT-4 mandated over 25,000 of Nvidia’s premier A100 AI processors, each carrying a $10,000 price tag. Extrapolate this to encompass the global demand for AI across cloud providers, data hubs, and corporations, and the monumental market opportunity comes sharply into focus.
Nvidia’s Enduring Legacy of Triumph
Nvidia’s ascent owes much to CEO Jensen Huang’s visionary acumen. Despite AI’s nascent adoption in 2013, Huang audaciously steered Nvidia to pivot towards this emergent technology, recognizing its transformative potential.
A stalwart proponent of AI’s inevitability, Huang repurposed parallel processing — originally instrumental in rendering lifelike video game imagery — to power AI’s computational demands. This strategic pivot reshaped Nvidia’s trajectory irreversibly.
Prior to AI’s meteoric prominence, Nvidia had already accumulated a storied history of triumphs, but AI now reigns as its economic linchpin. Revenue surges of 2,260% over the last decade propelled an 11,530% surge in net income, sending stock prices soaring by 27,900%. Many anticipate further valor in Nvidia’s future.
Nvidia’s forthcoming 10-for-1 stock split heralds another watershed moment, scheduled post-market closure this Friday. Reflecting on Bank of America analyst Jared Woodard’s insights underscores the post-split surge trends. Historically, split shares have surged 25% on average over the subsequent year, transcending the S&P 500’s 12% norm. This surge often mirrors the operational and financial prowess underpinning the elevated stock valuation.
An appraisal of Nvidia’s fiscal Q1 2025 presents an arresting narrative. Notable milestones include a staggering 262% year-over-year revenue leap to a record $26 billion, alongside a 629% EPS surge to $5.98. The data center segment, incorporating AI processors, spearheaded this trajectory, with a revenue spike of 427% to $22.6 billion, propelled by soaring AI chip demand.
Unveiling Nvidia’s Future Trajectory
In light of looming uncertainties surrounding AI’s enduring relevance, a circumspect investor cohort adopts a tentative stance. However, the perils of hesitancy could yield costly lessons. Conservative estimates project the generative AI market at $1.3 trillion by 2032 by Bloomberg Intelligence. In stark contrast, Ark Invest’s CEO Cathie Wood espouses a more bullish vision, envisioning a $13 trillion total addressable market by 2030. The probable reality likely nestles between these poles, underscoring the enigma enveloping AI’s ultimate market scope.
Deciphering this enigma alongside contemporary events unveils tech titans vying to craft a rival to Nvidia’s unparalleled GPU benchmark, yielding marginal outcomes thus far. Concurrently, Nvidia’s relentless R&D investments exceeding $8.7 billion last year — constituting 14% of its total expenditures — underscores its pursuit of AI processor preeminence.