How Nvidia Became The World's Most Valuable Company

Nvidia left the entire Wall Street in awe earlier this week as the chip maker went on the become the world's most valuable company, with a market capitalisation of $3.3 trillion. The company, which has been under the spotlight since the advent of OpenAI's ChatGPT, managed to surpass the value of tech giants like Apple and Microsoft.

While the AI war continues to put tech companies in a race for innovation to leverage the hype around large language models (LLMs), Nvidia has shaken its hands with almost every top tech company. Be it, Google, Microsoft or Meta, Nvidia has signed deals with each of these companies to accelerate the capabilities of the former.

On year-to-date basis, the shares of the chip maker have delivered a return of more than 180 per cent on NASDAQ.

In February, Nvidia's market value soared from $1 trillion to $2 trillion in just nine months. By June, it skyrocketed to $3 trillion in a little over three months. According to their latest quarterly report, the company recorded quarterly revenue of $26 billion, marking an 18 per cent rise from the previous quarter and a massive 262 per cent surge compared to the corresponding period of last year.

The robust financial figures of the company were perhaps, more than enough to bestow the crown of 'most valuable company' on Nvidia. However, more than the revenue sheet it was the AI boom that won the confidence of investors and users around the world.

The start

Nvidia was originally started in 1993 by founders Jensen Huang, Curtis Priem, and Chris Malachowsky. The company majorly focused on designing graphics accelerator chips for computers. Just six years later, they rolled out an IPO.

The company known for its GPUs (graphics processing units), quickly became synonymous with video games and computer graphics. However, over time, Nvidia diversified into other segments like GenAI, automotive, professional visualisation and data centers.

Unlike regular CPUs in PCs, GPUs are way more efficient and are better suited for complex computing tasks.

NVIDIA's growth widely came on stage in 2007 when it was named Forbes "Company of the Year." However, the company also faced some legal challenges later on.

Ticking away from gaming

Just a few years back, gaming used to be the company's main moneymaker, bringing in more revenue than its data center segment. However, post-pandemic, the company's primary focus started shifting. Today, majority of the company's revenue comes from data centers rather than just gaming.

In the first quarter of this year, the company's data center segment hit a new high with revenue reaching $22.6 billion. This marked a 23 per cent rise from the previous quarter and a whopping 427 per cent surge compared to the same period last year.

During the same quarter, gaming revenue saw a dip of 8 per cent as compared to last quarter and stood at around $2.6 billion. However, as compared to the corresponding quarter of last year, the revenue was up by 18 per cent.

A risk at backhand

Nvidia relies heavily on TSMC (Taiwan Semiconductor Manufacturing Company) and other chip manufacturers. Given the pricing levels at which Nvidia sells its products, an increase in TSMC's rates could potentially eat up Nvidia's margins.

Although Nvidia continues to enjoy robust customer confidence, it might lose its competitive edge if rivals like AMD and Intel introduce similar impressive products.

Investors are also concerned about Nvidia's massive bull run, with its ever-increasing share price raising not only Wall Street's hopes but the risk aspect as well. Before the first quarter's earnings call, a Goldman Sachs analyst even called Nvidia's stock as the "most important stock on planet Earth."

However, for now, Nvidia continues to stay at the top as AI hype remains in momentum. But the fate of the company might not be turbulent-free as other players in the market are still well-present in the AI race