Unhinged demand for Nvidia’s AI chips bumped the company’s valuation to $2 trillion, adding half of that in less than four months. Read how it happened.
Table of Contents
Genesis
Compiling
Speedrun
Benchmark
Spillover
Overclock Much?
Rage Quit
More Players Exit
Wild Rivals Appeared!
Runtime
Genesis
It’s a crisp, sunny morning in 1993. You’re at your local diner in Silicon Valley, casually sipping your coffee and waiting for your meal. At the table next to you, three engineers are cranking on caffeine and dreaming up a gig that would end up changing not only their lives, but also usher in a new era of computing. It’s the three founders of a company called Nvidia (ticker: NVDA).
A business-savvy 30-year-old Oregon graduate Jensen Huang, hardware savant Chris Malachowsky and software geek Curtis Priem spun up the business more than 30 years ago. Together, they set up their venture in a bid to bring 3D graphics to the gaming space.
Compiling
Today, the thriving company is doing much more than that. Nvidia, which traces its humble origins back to a Denny’s diner, is now the backbone of the artificial intelligence revolution.
Nvidia was for a long time shoved into the deeper corners of the gaming space and was barely known to the public. For most of its existence, it’s been making graphics cards, which are used by gamers, crypto miners, plain PC users and professionals from various industries.
The company’s booming business line right now is AI chips—hardware pieces essential for training large language models, the type that underpins systems like OpenAI’s ChatGPT.
AI chips have also underpinned another side of Nvidia—they’ve touched off a monster rally in its share price. Enough to catapult its valuation to the Top 3 of America’s biggest companies, right after iPhone maker Apple and software heavyweight Microsoft.
Speedrun
It took just about 24 years for Nvidia to step into the exclusive $1 trillion club, having started trading as a public company in 1999 at a $625 million valuation. Then in the span of just four months—November 2023 through February 2024—Nvidia added its second trillion, largely thanks to its timely expansion from its flagship products to the powerful AI chips.
Now, Nvidia is comfortably sitting in the Top 5 of the world’s largest companies.
“A whole new industry is being formed, and that’s driving our growth,” chief executive Jensen Huang told shareholders right after the company published jaw-dropping 265% revenue growth for the final quarter of 2023. The chip darling picked up $22.1 billion in sales, up from $6.05 billion a year ago. Profits swell to more than $12 billion.
Source: Stock Analysis
Benchmark
The earnings release fueled a never-before-seen $277-billion boost to the chip maker's valuation. It was the biggest one-day gain in history of the stock market, surpassing Meta’s recent $204.5 billion pump.
On the second day after the December-quarter financials were published, Nvidia went on to soar above $2 trillion in value with shares changing hands at more than $800 a pop.
Not only that, but the AI trailblazer’s report jolted markets so much it set off a buying spree on a global scale.
Spillover
In the US, the broad-based S&P 500 index notched an all-time high, joined in record territory by the Dow Jones Industrial Average. In Japan, the diverse Nikkei index broke out to a fresh record after 34 years of languishing performance.
Nvidia’s magnificent rise has propelled Huang’s personal fortune to roughly $70 billion, a reflection of his 86.6 million shares, or 3.6% of the company. Is it time for an attire upgrade away from the black leather jacket?
Shares of the company more than tripled in 2023 and pumped over 60% for the first two months of 2024.
Jensen Huang wearing his signature leather jacket—an outfit picked by his wife and daughter. Source: nvidianews.nvidia.com/
Overclock Much?
The fundamentals behind the company’s breakneck growth are undoubtedly real. Demand for Nvidia’s most advanced GPUs, called H100s, is so big the chips are being delivered in armored trucks. Each one of them weighs about 290 lbs (130 kg) and will set you back about $30,000 if you’re lucky to get one.
With that said, supply isn’t too loose with Nvidia holding about 80% of that market. What’s more, a new, more powerful H200 chip will be hitting the market in the second quarter of this year.
So what does this mean for the unstoppable rally? Analysts are quick to say that as long as Nvidia maintains its tight grip over supply, outweighing demand should continue to drive the up-only narrative.
Presently, Nvidia has the capacity to develop about 1.2 million AI-focused chips a year, far insufficient to meet the insatiable demand. To illustrate, Meta chief executive Mark Zuckerberg popped on Instagram to brag about his plans of securing 350,000 units of that good H100 stuff by the end of 2024.
Besides the Facebook parent, Nvidia’s biggest customers are Microsoft, Google and ChatGPT owner OpenAI.
Rage Quit
The stampede by investors rushing to buy up stock wouldn’t be complete if it weren’t for the naysayers and doom-and-gloom forecasters. You’d be surprised to see who is on that list of permabears, slamming the chip maker and getting their short positions ready to fire. Or already fired.
Following Nvidia’s post-earnings explosion, short sellers were left nursing paper losses in excess of $3 billion. Staring at giant drawdowns might sting just as badly as missing out the ride.
Disruptive-tech investor Cathie Wood, CEO of investment firm ARK, said in 2023 that Nvidia was “priced ahead of the curve.” By the end of the year, Wood had offloaded a stake worth more than $100 million. Estimations point that this early leave may be equal to more than $500 million in missed-out profits.
There are other notable names in the investment space who got rid of—or heavily trimmed—their Nvidia shares by the end of last year. (Hedge funds and other investment managers who oversee at least $100 million are required to disclose their holdings in public companies each quarter through a form called 13F.)
More Players Exit
In its 13F filing with the Securities and Exchange Commission, George Soros’s family office Soros Capital had completely exited Nvidia in the third quarter, selling shares worth $4.9 million.
Billionaire Stanley Druckenmiller’s family office held 875,000 shares of Nvidia going into 2023’s third quarter. By the end of the fourth quarter, that hefty stash had been reduced by roughly 40%. Druckenmiller still owns some $300 million in Nvidia shares and even scooped up call options with a notional value of $242 million.
The sellers’ argument wraps around the heavily cyclical nature of chip demand. While in good times there’s euphoria and chip companies triumph, they could also be prone to setbacks once the tide turns.
A fresh example from Nvidia’s recent performance is the 60% drop in its share price in the time span April through September 2022.
Nvidia's share price endured a 60% drop between April and September 2022.
Wild Rivals Appeared!
Competitors from the hardware corner of the economy don’t sit idle while Nvidia goes on an all-out expansion mission. Advanced Micro Devices (ticker: AMD) is already selling chips similar to the H100s and projects revenue to land at $3.5 billion in 2024. If that number is met, or even doubles, it still will be a blip compared with Nvidia’s $100 billion full-year revenue Wall Street expects.
SoftBank-backed Arm Holdings (ticker: ARM), whose stock is just as volatile, is in the AI race too. So is Intel (ticker: INTC) — the US tech mainstay makes and sells chips that power generative AI software.
Nvidia, meanwhile, is busy taking steps to try and cement its dominance in the AI space. It’s already in talks with big tech giants such as Microsoft, Amazon and Google over developing custom chips. Meanwhile, all three are manufacturing their own chips.
Runtime
The big question lingering on everyone’s mind is when will that dizzying AI boom come to a halt or at least pause for breath? Nvidia’s formidable rally, fueled by the rush for graphics processors, is the very definition of what seizing the day means. What’s a reason that may extend this run?
One reason is that the company keeps adding blockbuster earnings quarter in and quarter out.
A second one—Nvidia will need to find a way to work together with tech giants seeking to cut into the AI business. And thirdly, all that effort should eventually pay off by laying out the infrastructure that will foster the much-anticipated AI-driven productivity gain.
Table of Contents
Genesis
Compiling
Speedrun
Benchmark
Spillover
Overclock Much?
Rage Quit
More Players Exit
Wild Rivals Appeared!
Runtime
Genesis
It’s a crisp, sunny morning in 1993. You’re at your local diner in Silicon Valley, casually sipping your coffee and waiting for your meal. At the table next to you, three engineers are cranking on caffeine and dreaming up a gig that would end up changing not only their lives, but also usher in a new era of computing. It’s the three founders of a company called Nvidia (ticker: NVDA).
A business-savvy 30-year-old Oregon graduate Jensen Huang, hardware savant Chris Malachowsky and software geek Curtis Priem spun up the business more than 30 years ago. Together, they set up their venture in a bid to bring 3D graphics to the gaming space.
Compiling
Today, the thriving company is doing much more than that. Nvidia, which traces its humble origins back to a Denny’s diner, is now the backbone of the artificial intelligence revolution.
Nvidia was for a long time shoved into the deeper corners of the gaming space and was barely known to the public. For most of its existence, it’s been making graphics cards, which are used by gamers, crypto miners, plain PC users and professionals from various industries.
The company’s booming business line right now is AI chips—hardware pieces essential for training large language models, the type that underpins systems like OpenAI’s ChatGPT.
AI chips have also underpinned another side of Nvidia—they’ve touched off a monster rally in its share price. Enough to catapult its valuation to the Top 3 of America’s biggest companies, right after iPhone maker Apple and software heavyweight Microsoft.
Speedrun
It took just about 24 years for Nvidia to step into the exclusive $1 trillion club, having started trading as a public company in 1999 at a $625 million valuation. Then in the span of just four months—November 2023 through February 2024—Nvidia added its second trillion, largely thanks to its timely expansion from its flagship products to the powerful AI chips.
Now, Nvidia is comfortably sitting in the Top 5 of the world’s largest companies.
“A whole new industry is being formed, and that’s driving our growth,” chief executive Jensen Huang told shareholders right after the company published jaw-dropping 265% revenue growth for the final quarter of 2023. The chip darling picked up $22.1 billion in sales, up from $6.05 billion a year ago. Profits swell to more than $12 billion.
Benchmark
The earnings release fueled a never-before-seen $277-billion boost to the chip maker's valuation. It was the biggest one-day gain in history of the stock market, surpassing Meta’s recent $204.5 billion pump.
On the second day after the December-quarter financials were published, Nvidia went on to soar above $2 trillion in value with shares changing hands at more than $800 a pop.
Not only that, but the AI trailblazer’s report jolted markets so much it set off a buying spree on a global scale.
Spillover
In the US, the broad-based S&P 500 index notched an all-time high, joined in record territory by the Dow Jones Industrial Average. In Japan, the diverse Nikkei index broke out to a fresh record after 34 years of languishing performance.
Nvidia’s magnificent rise has propelled Huang’s personal fortune to roughly $70 billion, a reflection of his 86.6 million shares, or 3.6% of the company. Is it time for an attire upgrade away from the black leather jacket?
Shares of the company more than tripled in 2023 and pumped over 60% for the first two months of 2024.
Overclock Much?
The fundamentals behind the company’s breakneck growth are undoubtedly real. Demand for Nvidia’s most advanced GPUs, called H100s, is so big the chips are being delivered in armored trucks. Each one of them weighs about 290 lbs (130 kg) and will set you back about $30,000 if you’re lucky to get one.
With that said, supply isn’t too loose with Nvidia holding about 80% of that market. What’s more, a new, more powerful H200 chip will be hitting the market in the second quarter of this year.
So what does this mean for the unstoppable rally? Analysts are quick to say that as long as Nvidia maintains its tight grip over supply, outweighing demand should continue to drive the up-only narrative.
Presently, Nvidia has the capacity to develop about 1.2 million AI-focused chips a year, far insufficient to meet the insatiable demand. To illustrate, Meta chief executive Mark Zuckerberg popped on Instagram to brag about his plans of securing 350,000 units of that good H100 stuff by the end of 2024.
Besides the Facebook parent, Nvidia’s biggest customers are Microsoft, Google and ChatGPT owner OpenAI.
Rage Quit
The stampede by investors rushing to buy up stock wouldn’t be complete if it weren’t for the naysayers and doom-and-gloom forecasters. You’d be surprised to see who is on that list of permabears, slamming the chip maker and getting their short positions ready to fire. Or already fired.
Following Nvidia’s post-earnings explosion, short sellers were left nursing paper losses in excess of $3 billion. Staring at giant drawdowns might sting just as badly as missing out the ride.
Disruptive-tech investor Cathie Wood, CEO of investment firm ARK, said in 2023 that Nvidia was “priced ahead of the curve.” By the end of the year, Wood had offloaded a stake worth more than $100 million. Estimations point that this early leave may be equal to more than $500 million in missed-out profits.
There are other notable names in the investment space who got rid of—or heavily trimmed—their Nvidia shares by the end of last year. (Hedge funds and other investment managers who oversee at least $100 million are required to disclose their holdings in public companies each quarter through a form called 13F.)
More Players Exit
In its 13F filing with the Securities and Exchange Commission, George Soros’s family office Soros Capital had completely exited Nvidia in the third quarter, selling shares worth $4.9 million.
Billionaire Stanley Druckenmiller’s family office held 875,000 shares of Nvidia going into 2023’s third quarter. By the end of the fourth quarter, that hefty stash had been reduced by roughly 40%. Druckenmiller still owns some $300 million in Nvidia shares and even scooped up call options with a notional value of $242 million.
The sellers’ argument wraps around the heavily cyclical nature of chip demand. While in good times there’s euphoria and chip companies triumph, they could also be prone to setbacks once the tide turns.
A fresh example from Nvidia’s recent performance is the 60% drop in its share price in the time span April through September 2022.
Wild Rivals Appeared!
Competitors from the hardware corner of the economy don’t sit idle while Nvidia goes on an all-out expansion mission. Advanced Micro Devices (ticker: AMD) is already selling chips similar to the H100s and projects revenue to land at $3.5 billion in 2024. If that number is met, or even doubles, it still will be a blip compared with Nvidia’s $100 billion full-year revenue Wall Street expects.
SoftBank-backed Arm Holdings (ticker: ARM), whose stock is just as volatile, is in the AI race too. So is Intel (ticker: INTC) — the US tech mainstay makes and sells chips that power generative AI software.
Nvidia, meanwhile, is busy taking steps to try and cement its dominance in the AI space. It’s already in talks with big tech giants such as Microsoft, Amazon and Google over developing custom chips. Meanwhile, all three are manufacturing their own chips.
Runtime
The big question lingering on everyone’s mind is when will that dizzying AI boom come to a halt or at least pause for breath? Nvidia’s formidable rally, fueled by the rush for graphics processors, is the very definition of what seizing the day means. What’s a reason that may extend this run?
One reason is that the company keeps adding blockbuster earnings quarter in and quarter out.
A second one—Nvidia will need to find a way to work together with tech giants seeking to cut into the AI business. And thirdly, all that effort should eventually pay off by laying out the infrastructure that will foster the much-anticipated AI-driven productivity gain.
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