If you’ve noticed a little green sticker on your PC or laptop, it probably means that Nvidia’s hardware – or graphics card, for tech enthusiasts – is inside.
“Nvidia started by making chips for your PC that let you play games very quickly,” says Mark Pesce, honorary associate in digital cultures at the University of Sydney.
“So if you’re running Fortnite at, say, 30 or 50 frames per second, it’s probably because you have an Nvidia chip in your PC that makes that possible.”
Nvidia opened its doors in 1993.
The power of its hardware makes artificial intelligence (AI) applications developed by Tesla, Facebook, Amazon, Google and Microsoft possible, meaning they are now in high demand.
“They make the best chips for gamers, and have done so for a long time,” says Dr. Pesce.
“But a few years ago they realized that chips aimed at gamers were also very good at AI.”
On Thursday, the tech giant reported revenue of $22.1 billion ($33.6 billion) for the December 2023 quarter – up 265 percent from the previous year.
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The news sent investors rushing into the stock, boosting its market valuation by $US250 billion ($381 billion).
It was the largest single-day gain by a company in Wall Street history.
“The world has reached a tipping point for new computing power,” said Colette Kress, Nvidia’s chief financial officer, when announcing the results.
Nvidia shares closed up 16.4 percent on Wall Street, at $785.38.
The rise gives the tech giant a market valuation of $1.94 trillion ($2.95 trillion), about $38 billion more than Australia’s gross domestic product.
“Not only did they destroy their profits – and many analysts were saying it was impossible for Nvidia to make the profits they expected this quarter – but they also exceeded them by 700 percent,” Dr. Pesce said.
“There is such high demand for the chips they make, and their supply is so limited – and they are making these chips as fast as they can right now – that they are literally printing money on silicon .”
AI boom drives market growth
The key to Nvidia’s recent success is the explosion in demand for Microsoft-related products like ChatGPT that use its chips.
But can this demand be sustained, especially as many tech giants seek to make their own chips with the same computing power?
Dr. Pesce thinks it’s possible.
“Nvidia won’t have the market on its own, but the market is growing so fast that it probably doesn’t matter,” he says.
“AI still has a long way to go. We don’t see people spending money without a promise of return.”
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He says that currently, investments in AI are paying off handsomely, mainly because that money is being spent on infrastructure.
“We are in a pick and shovel phase – and as long as that lasts, the returns for investors will be good,” he says.
“But as we get into the applications of AI – how is this going to change the way you work, or I work, on a day-to-day basis? – that’s where we’ll see whether the fortunes are real or not.”
Independent analyst Evan Lucas is “excited” about Nvidia’s earnings outlook and dismissed suggestions of a “bubble” in financial markets.
“There are no signs of stress at Nvidia that suggest a bubble exists,” he says.
“It’s not a new company; Nvidia has been around for three decades. So it has a history, it understands what it does.
“There is also experience, there are the right people in place. It is now a mature company that is moving to another level.”
But Mr Lucas has some concerns about the company’s prospects.
“My concern would be that (if you had) a supply interruption (like the one) created by COVID, you would have an interruption where maybe the chip technology would start to fail,” he says.
“If the chip technology failed and was not able to meet the processing requirements that AI needs, that would be an individual structural problem that Nvidia would suffer from.”
Economists also have some reservations about the rise of AI, but caution against calling it a “bubble”.
“Comparisons are made between the current AI boom and the tech bubble of the late 1990s, but there are big differences in the extent to which AI-related technology companies are experiencing strong profit growth” , notes AMP chief economist Shane Oliver.
“Investors should be wary of jumping on the AI bandwagon, however, as related chip manufacturing is very competitive (and) it will take time for the economic benefits of AI to be realized.
“The real winners might turn out to be different from today’s best, as happened with many tech stocks a generation ago.”
Nvidia also faces geopolitical risks, Dr. Pesce points out, given that its production facilities are based in Taiwan.
