Nvidia Corp., Providing the Shovels to the Gold Rush
Back in 1995, Nvidia almost went bankrupt. Today, this company is worth over $2 trillion.
Nvidia’s share price increased 241% in the past year, moreover, in the past 5 years, the company’s share price increased by over 1800%.
A US multinational tech company, Nvidia was founded in 1993 by Jen-Hsun “Jensen” Huang, Curtis Priem, and Chris Malachowsky. Nvidia started manufacturing CPUs (central processing units) in 1993 for the gaming industry. This was their core business.
What drove Nvidia to be the best-performing company on the S&P 500?
Nvidia is more than just a graphics card producer
With the advancement of gaming technology, moving from MS-DOS to Windows, 3D graphics require faster mathematical processing units. And the CPU capability was simply not sufficient.
GPUs (graphic processing units) were the solution to the fast-evolving gaming industry. But this market was saturated with competition when Nvidia came onto the scene. Companies like ATI Technologies, Matrox, Chips & Technology, S3 Graphics, and 3Dfx were already producing GPUs.
However, Nvidia crushed its competition when it released the GeForce card in 1999. The GeForce card had more advanced 3D graphics features and lightning-fast techniques that outperformed their competitors.
In 2006, AMD acquired ATI as part of its strategic development of its Fusion generation of computer processors. In this way, AMD challenged Nvidia’s gaming GPUs. To counteract AMD’s strategy, Nvidia developed CUDA, a coding language similar to C++ used for programming GPUs, further expanding the functionality of GPU technology.
Nvidia has since grown into the primary chip provider for gaming, however, its innovative technology allowed the business to expand into HPC (high-performance computing) and artificial intelligence (AI).
Nvidia share price reaches record highs
According to economists, the share price of Nvidia has risen so rapidly that analysts trying to set price targets cannot keep up. The birth of generative AI has skyrocketed Nvidia’s stock price by over 220% in the past year. At the beginning of 2023, the stock traded at $142 per share, climbing to $879 more than a year later.
Nvidia designs the chips that allow AI to work, and this revolutionary innovation has created a high demand for GPUs. Thanks to Meta Corp., sales of H100 AI GPUs reached half a million in Q3 of 2023. Meta and Microsoft are the largest purchases of H100 GPUs.
Nvidia is valued at $2.2 trillion, the third largest publicly listed company after Microsoft and Apple. Analysts watching the company closely are concerned that if the stock continues to rise at this rate, it will create a stock bubble. And once it hits the roof, it might come crashing down very fast.
The question on investors’ minds is, is this just the beginning of a rally, or is the stock overvalued?
