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What's going on with Nvidia stock and the booming AI market?
Nvidia's market value surpassed $3 trillion in 2024, fueled by the generative AI boom, rebounding tech sector and 154% stock growth in 2024. However, there are questions if AI will sustain the hype cycle.
Nvidia continues to grow as it surpassed the $3 trillion mark on June 18, 2024, before dipping just below $3 trillion at the end of August 2024. As of November 2024, Nvidia is the largest-listed U.S. company based on market capitalization value surpassing Apple with its market cap reaching more than $3.6 trillion. In the middle of 2023, Nvidia passed the $1 trillion mark and was more valuable than Amazon and Alphabet, Google's parent company. In just nine months, the company's market worth increased from $1 trillion to $2 trillion in February 2024, and it took only three months to reach $3 trillion in June 2024.
Nvidia stock has seen its ups and downs. Even after reporting impressive growth numbers, Nvidia stock was down as much as 5% after its 2024 second-quarter earnings report. On Nov. 7, 2024, Nvidia stock reached an all-time high of $148 due to the high demand for its GPUs needed for AI work. Nvidia’s newest chip, Blackwell, is so in demand that it is preordered and booked out for up to 12 months. Because of Nvidia’s steady growth, it will replace competitor Intel in the Dow Jones. S&P Global owns the Dow, and its committee selects stocks for the Dow based on how their industry is perceived to affect the U.S. economy.
The rise of Nvidia took some time. The tech sector faced a rough 2022. It started to rebound in 2023 despite tech layoffs. Generative AI is one of the main drivers of its rebound, and the stock market is showing signs of this rebound. The rise of generative AI led to a tech bull market, which is a time of expansion in the stock exchange.
The top-tier group of tech stocks is known as the Magnificent Seven and includes Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. The Magnificent Seven company stocks were up an average of 111% in 2023, and Nvidia was up 239% in 2023.
On June 7, 2024, Nvidia stock completed a 10-for-1 stock split, which will make its stock price approximately $120 from $1,200. The shares will begin trading at the split-adjusted rates on June 10, 2024. Nvidia is splitting its stock to make it more accessible to employees and investors. This split will not change the overall value of the company. This means any stockholder who owned a share of stock before the split will receive nine more shares after the split. Over time, this lower stock price makes it easier for investors to access shares. This stock split helped Nvidia transition to the Dow Jones because the individual share price of the stock is a leading component of the Dow and not the company's total market value.
Even with the daily ups and downs of the stock market, investors are taking notice of this growth and wondering how much the AI demand may drive the tech market in 2024.
The rise of Nvidia
Nvidia is one of the world's largest producers of GPUs. GPUs are computer chips or semiconductors that use math operations to produce visuals and images. The GPU manages and speeds up graphic workloads and displays visual content on a device such as PC or smartphone.
Each of Nvidia's earnings reports exceeded expectations throughout 2023 as AI started gaining momentum and attention. Nvidia's advanced chips can use and process the massive amounts needed to train generative AI programs, such as ChatGPT and Gemini. Since Nvidia dominated this market before the increasing need for AI, Nvidia only grew larger as demand soared.
Nvidia reported revenue of $30 billion for its fiscal second quarter ending July 28, 2024. This revenue was up 15% from the previous quarter and up 152% from one year prior. The company earned record quarterly data center revenue of $26.3 billion, which increased 16% from the previous quarter and was up 154% from the previous year.
To put it in perspective, companies -- such as Apple and Microsoft -- are spending money on AI, and Nvidia is making money on AI as it produces the chips to run the technology.
Businesses need hardware to support high amounts of energy with the AI wave, but these advanced chips are also needed for the metaverse, gaming and spatial computing. Nvidia also makes chips for cars as technology continues to advance.
The core reasons for the rise of Nvidia stock
The rise of generative AI is one of the key factors of Nvidia's rise. However, there are some other reasons Nvidia stock increased 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, such as Meta for its AI Research SuperCluster computer, to train complex AI models. Tesla is also starting to build an AI-focused supercomputer for its vehicles.
2. Demand for generative AI
With no signs of the demand for generative AI slowing down, 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% in the next 10 years, according to Bloomberg Intelligence. The demand for generative AI products could make the generative AI market worth $1.3 trillion by 2032.
Nvidia's A100 GPU chips are used in training the model for ChatGPT. Companies, such as OpenAI, that use large amounts of data for tasks such as training large language models evolve quickly and need more accelerated computing. The demand for GPUs will only grow as these systems train and evolve with more data.
3. The changing world of the 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 stream extended reality (XR) content efficiently. As the metaverse evolves, so does the demand for Nvidia chips to run the metaverse. Companies are turning to XR programs to create virtual environments for training.
The gaming world is also a large customer of Nvidia's graphics division. Video games need stronger cards to run the high-resolution images, especially as more games move to the cloud and away from the console. Nvidia's gaming GPUs, such as GeForce RTX 4070, help power video games at a higher resolution and quicker speed.
4. Strategic placement
Nvidia is a large part of the cryptocurrency world. Miners use its cards for mining tokens, which requires a great deal of power. There was an unprecedented demand for Nvidia's cards as cryptocurrency took off.
Future of Nvidia
While Nvidia's processors run most of the data centers that power generative AI, there are still some possible challenges ahead, including competition from tech giants to make their own AI chips, economic uncertainty and a rise in competition.
The generative AI market is expected to continue growing, but more rules and regulations are going to be introduced that could affect Nvidia's AI chips. The U.S. trade restrictions on China's advanced semiconductors are also impacting Nvidia's growth, as Chinese sales were a large part of Nvidia's data center sales.
With Nvidia's noticeable 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 one company and will start exploring these other vendors, which could hurt Nvidia's growth.
It's hard to predict whether Nvidia will continue its growth at its current pace. Nvidia has built a solid foundation in the AI market, and if the generative AI market grows as predicted, its revenue will continue to grow. But it's unknown how much of the market Nvidia's competitors will take. Nvidia still has a strong share in the face of rising competition as it recently announced its H200 computing platform. Cloud providers such as Amazon, Google and Microsoft have developed AI processors, but they work with Nvidia chips.
Another obstacle facing Nvidia is the possibility of limiting sales of its advanced AI chips to some countries in the interest of national security.
The market is evolving quickly. Enterprises are looking to adopt generative AI, leading to the creation of new vendors to meet business needs. New areas such as security and compliance will also change the generative AI market in the business world.
Nvidia’s data center business is a leading driver of success and has a demand for AI infrastructure. Data center sales made up nearly 87% of Nvidia’s revenue. Other Big Tech companies -- such as Google, Microsoft and Meta -- continue to invest in AI and announced increased AI spending in their earnings reports. This shows that even if Nvidia’s stock doesn’t grow as rapidly as it once did, it doesn’t mean the company is performing poorly. It’s still growing and the need for its products remains strong.
Learn more about other companies on the stock exchange innovating in AI.
Amanda Hetler is senior editor and writer for WhatIs, where she writes technology explainer articles and works with freelancers.
