Nvidia Outperformance: Understanding the Rush Toward AI

Nvidia’s stock has quintupled in just one year, surpassing Alphabet and Amazon in the rankings of the world’s largest market capitalizations. Behind such performance… artificial intelligence!

“It’s better to sell the picks and shovels than to search for the gold” – Everyone knows the famous story of the 19th-century Gold Rush, in search of the irresistible nugget. The prospectors came back empty-handed, making a fortune for the equipment sellers. For its part, Nvidia sells graphics cards, the equivalent of picks and shovels, but in the 21st century, and investors have understood this well. As a global leader in processors, Nvidia thus holds the key element in the development of artificial intelligence.

Nvidia is worth as much as all of Hong Kong

Nvidia’s stock went from 150 dollars in January 2023 to 740 dollars today (almost a fivefold increase) on Wall Street, reaching a 1.78 trillion dollar valuation. “It is now worth as much as the entire Chinese stock market as defined by the H-shares listed in Hong Kong,” pointed out Michael Hartnett, chief investment strategist at Bank of America.

Nvidia dominates the graphics card sector with 84% market share according to Jon Peddie Research results, and even more than 90% according to some. Ahead of Meta, it shares with Alphabet (Google) the rank of the fourth largest market capitalization in the world (Amazon sometimes joins them). The company is positioned just behind the Saudi Arabian Oil Company, which it surpasses by just 0.2 trillion dollars in valuation.

The new gold?

Apple and Microsoft have already dethroned Saudi Arabian Oil Co, which is now threatened to lose its place on the podium to Nvidia. The GAMAM (Google, Apple, Microsoft, Amazon, Meta) are undoubtedly the largest companies in the world. However, their business model is built on a different resource from those of past centuries, namely data, now managed in a virtual environment. Their progress in the 2010s was a first revolution since the value of physical goods was already being surpassed by that of data and digital.

Logically, the time is now for Artificial Intelligence, since its promise is to ease the management of all this data and even to create new ones from it. AI models can indeed use the digital data made available to them to reproduce “human” behaviors based on instructions describing a specific desired outcome. Machines have reached a milestone with the ability to self-program and improve their own functioning alone in order to optimally accomplish what humans ask of them. This entire process relies on a large computing capacity.

The craze around graphics cards is also due to a quasi-monopolistic situation. Nvidia manages an overwhelming part of the processor design, while Taiwan takes care of the manufacturing of semiconductors, central components of graphics cards. These materials, once coveted mainly by players in the video game world, are now regularly out of stock since the advent of AI in the public sphere, which is very demanding on GPUs (graphics processing unit).

“Companies worldwide are transitioning to accelerated computing and generative AI,” said Nvidia CEO Jensen Huang in a statement in 2023.

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A new era

Is it just a trend? “No Sir, it’s a Revolution.” Many are convinced, such as Elon Musk, Bill Gates, Putin, Klaus Schwab, etc. It’s noteworthy that Apple has yet to mention AI in its communications and sees its market valuation surpassed by that of Microsoft, which aims to be the pioneer of this new wave. In 2023, Microsoft acquired Open AI, the parent company of the first artificial intelligence tool to reach the general public, ChatGPT.

Jensen Huang was invited to Dubai at the World Government Summit (from February 12 to 14 last). AI surpasses economic issues given the sensitive nature of the data market but also the “production of intelligence (artificial)” that it entails. “It codifies your culture, the intelligence of your society, your common sense, your history – you own your own data… Every country must own the production of its own intelligence“ Huang argued during a conference with His Excellency Omar Al Olama of the United Arab Emirates, fully subscribing to his guest’s vision.

On March 18, 2024, Nvidia will host a conference titled “Don’t Miss This Pivotal Moment for AI” in San Jose, USA, with its CEO.