Nvidia surpassed the $1 trillion mark in mid-2023 by overtaking Amazon and Google parent Alphabet to become the third largest publicly traded U.S. company by market value.
The increase in Nvidia took time. The technology sector had a difficult 2022. It started to rebound in 2023 despite technology layoffs. Generative AI is one of the main drivers of its rebound, and the stock market is showing signs of this rebound. The Nasdaq index is heavy on tech stocks and ends 2023 higher 43%. The rise of generative AI has led to a technology bull market, which is a period of stock market expansion.
The prominent group of tech stocks is known as the Magnificent Seven and includes Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. Magnificent Seven company shares are up an average of 111% in 2023, and Nvidia is up 239% in 2023.
Even with the stock market’s daily ups and downs, investors are taking note of this growth and wondering how much demand for AI could drive the tech market in 2024.
The rise of Nvidia
Nvidia is one of the world’s largest producers of GPU. GPUs are computer chips or semiconductors that use mathematical operations to produce visuals and images. The GPU handles and accelerates graphics workloads and displays visual content on a device such as a PC or smartphone.
Each of Nvidia’s earnings reports beat expectations throughout 2023, as AI began to gain traction and attention. Nvidia’s advanced chips can use and process the massive quantities needed to train generative AI programs, such as ChatGPT and Gemini. Since Nvidia dominated this market before the growing need for AI, Nvidia has only grown as demand skyrocketed.
Nvidia reported revenue of $22.1 billion for its fourth fiscal quarter ending January 28, 2024. This revenue is up 22% from the third quarter and 265% from the year former. The company had revenue of $60.9 billion for the full year, up 126%.
Businesses need hardware to support large amounts of power with the AI wave, but these advanced chips are also needed for the metaversegames and spatial computing. Nvidia also makes chips for cars as technology continues to advance.
The main reasons for the rise in Nvidia stock
The rise of generative AI is one of the key factors in Nvidia’s rise. However, there are other reasons why Nvidia stock has risen significantly.
1. The rise of supercomputers
Nvidia’s chips power supercomputers because of the large amounts of data needed for this advanced technology. Supercomputing technology is used by companies, like Meta for its AI Research SuperCluster computer, to train complex AI models. Tesla is also starting to build an AI-driven supercomputer for its vehicles.
2. Demand for Generative AI
With no signs of demand for generative AI slowing, Nvidia is poised to grow as each new system is adopted. The AI industry is expected to grow at a compound annual growth rate of 42% over the next 10 years, according to Bloomberg Intelligence. Demand for generative AI products could grow the generative AI market to $1.3 trillion by 2032.
Nvidia’s A100 GPU chips are used to train the model for ChatGPT. Companies, like OpenAI, that use large amounts of data for tasks like training major language models evolve rapidly and require more accelerated computing. The demand for GPUs will only increase as these systems train and scale with more data.
3. The Changing World of Metaverse and XR
Nvidia has played a role in the metaverse and the virtual and augmented reality landscape with its Omniverse platform. Nvidia offers 3D modeling programs to help efficiently deliver extended reality (XR) content. As the Metaverse scales, so does the demand for Nvidia chips to run the Metaverse. Companies are turning to XR programs to create virtual environments for training.
The world of video games is also an important customer of Nvidia’s graphics division. Video games need more powerful cards to run high-resolution images, especially as more games move to the cloud and away from the console. Nvidia’s gaming GPUs, such as GeForce RTX 4070help power video games with higher resolution and faster speed.
4. Strategic placement
Nvidia represents a large part of the cryptocurrency world. Miners use its cards to mining tokens, which requires a lot of power. There has been unprecedented demand for Nvidia cards as cryptocurrencies take off.
The future of Nvidia
Even though Nvidia’s processors power most of the data centers that power generative AI, some challenges remain, including competition from tech giants to make their own AI chips, economic uncertainty, and a increased competition.
The generative AI market is expected to continue to grow, but more rules and regulations will be introduced that could affect Nvidia’s AI chips. U.S. trade restrictions on Chinese advanced semiconductors are also impacting Nvidia’s growth, as Chinese sales account for a significant portion of Nvidia’s data center sales.
With Nvidia’s notable growth, other competitors are offering similar chips, such as AMD’s Instinct MI200 family of GPU accelerators. Intel also launched a set of fifth-generation Intel Xeon processors for data centers. Companies may not want to rely on just one company and will start exploring these other vendors, which could hurt Nvidia’s growth.
It is difficult to predict whether Nvidia will continue to grow at its current pace. Nvidia has built a strong foundation in the AI market, and if the generative AI market develops as expected, its revenue will continue to grow. But it’s unclear how much market share Nvidia’s competitors will take. Nvidia still holds a significant share amid growing competition as it recently announced its H200 computing platform. Cloud providers like Amazon, Google and Microsoft have developed AI processors, but they run on Nvidia chips.
The market is evolving rapidly. Businesses are looking to adopt generative AI, leading to the creation of new vendors to meet their needs. New areas such as security and compliance will also change the market for generative AI in the business world.
Learn more about others publicly traded companies innovate in AI.
Amanda Hetler is an editor and editor for WhatIs, where she writes how-to articles about technology and works with freelancers.
