All About Nvidia
The “Magnificent Seven” is a label reserved for a select few companies that demonstrate consistent strength in their respective market. All these mega-cap companies hold over $200 billion in market value, with some netting trillions. With this immense market weight comes the ability to shift entire indexes (Chen, 2022), and recent trends have shown the true power of these companies. The extent of this influence is rapidly expanding as the markets for AI continue to grow.
Among these tech powerhouses lies one of the world's top producers of GPU and chip systems, Nvidia. In 1993, Nvidia’s first and only CEO, Jensen Huang, founded Nvidia with partners Chris Malachowsky and Curtis Priem in hopes of bringing quality 3D graphics to gaming and media and creating a market with his idea (Nvidia).
Company History
Quickly after the company's 1999 IPO, Nvidia proved its worth and entrepreneurial tone. Within a few years of becoming public, Nvidia made history with the release of GeForce 256, a product coined as the first GPU. GPUs, or graphics processing units, serve a variety of purposes, including graphics rendering, cryptocurrency mining, computing complex equations, and AI and machine learning (Weka). The release of this product caused a revolution in the technology industry, and within the first year of being public, the company achieved a $200 million contract with Microsoft to develop the graphics for the Xbox game console.
Their success was instantly reflected by the stock price rising from just $16.50 to $66.90 in 2001, closing the year with a revenue of $1.37 billion (Zippia). Their technology and history quickly caught the eye of multiple companies, and by 2004, Nvidia earned deals with SONY, Apple, Microsoft, and NASA (Nvidia). For years following, Nvidia maintained remarkably strong financials and product offerings, including 15% sales growth on top of leading the gaming market, and was named Forbes Company of the Year in 2007 as a result (Forbes).
In 2008, after a trail of numerous successes, the company’s income statements, and reputation became tarnished following a class action lawsuit against them. A claim was filed in March 2008; Nvidia was accused, and eventually found guilty in 2010, of misrepresenting and falsely advertising the frequent issues that came from its mobile video adaptors (Stanford Law School). The suit referred to the high failure rates that this product had, and the failure of Nvidia to address the issues, leading to a $3 billion dent in the company's market cap, as well as stock prices dropping 77%, the second-highest ever recorded in company history.
Nvidia quickly recovered from the financial damage caused by this lawsuit and began the decade off strong. This stride suddenly ended in 2016 when they were served with yet another class action lawsuit surrounding misinformation. Despite the similarity of the lawsuit to the latter, the company’s financials weren’t hit nearly as hard as they were in the previous lawsuit.
GPUs Applied
During their first years of operations, Nvidia’s marketing and missions focused on gamers. They were extremely successful in their ventures to improve computing graphics, and their products quickly became the standard in the industry. Products like their GeForce RTX 4090 and 3090 are widely used by gamers and those who desire better graphics quality and better performance.
Although these GPUs were sold with the intention of improving graphics, the demand eventually shifted from just gamers to crypto miners. Crypto mining was initially performed by central processing units or CPUs; however, GPUs started taking over this method. GPUs can perform numerous complex equations at a time, which allows crypto miners to generate money significantly faster and more efficiently than they would with CPUs, with many CPUs reportedly running 800 times slower than standard GPUs (Seth, 2023). In 2022, it was estimated that on Ethereum (A type of crypto) alone, miners spent $15 billion on GPUs to support their involvement in this market (Bloomberg, Pan, Kharif). This contributed to both a shortage and the rise of the prices of GPUs. In response to this, Nvidia released a line of products like the Nvidia Cmp HX, tailored specifically to crypto miners (Irwin, 2023). Miners still purchased a range of products, and the volatility of this market had a direct effect on a big portion of Nvidia's sales.
Despite all their highs and lows, Nvidia’s biggest growth opportunity revealed itself in 2017 as one of the most impactful AI breakthroughs in history, OpenAI's ChatGPT. Nvidia‘s connections to AI go as far back as 2006 when CUDA, a revolutionary computing platform, was released. The architecture of CUDA enables users to dramatically increase the speeds at which their GPUs can run, boosting the capabilities of supercomputers (Nvidia). Breakthroughs were made in the computing field with this platform. In 2009, a professor at the University of Toronto used CUDA to successfully train a computer to recognize human speech. It was after instances like these that many saw the potential for these products (Witt, 2023).
Trailing the release of CUDA was AlexNet, another neural network with breakthrough abilities. Although not released by Nvidia, AlexNet utilized just two of their GPUs to produce highly advanced results. This platform was able to classify images unlike any other platform or neural network at the time, and it only took a few days to train. Computer scientists realized the true potential held by these neural networks and the GPUs they were trained with, and many began to shift towards using systems like this (Corbyn and Morris, 2023).
Following the discovery of the unparalleled potential for AI, many began investing in products like these. Around 2016, Nvidia donated its first A.I. supercomputer to a research group at OpenAI (Witt, 2023). Around a year later, they released the first GPT, which evolved into the massive AI network known today as ChatGPT. This platform was trained on Nvidia’s GPUs, and its massive success boosted the demand for Nvidia's products even more than before. The effects of AI resulting from these GPUs are evolving each day and have contributed to Nvidia’s titan-sized market cap.
Market Grip
In Q1 of 2024, Nvidia’s market price soared, and hit an all-time high of $974, around a 125% increase since November 1st, 2023. Their impressive hike and giant market cap of $2.2 trillion have created some of the largest growth across all sectors in any global market. Nvidia’s growth has brought with it tremendous market power. Recently, the S&P 500 reached a historical high at $5,421. This peak was the result of extremely good performance by Amazon, Microsoft, Nvidia, and Meta Platforms, which were responsible for 60% of the growth in this index. In this group, Nvidia made up 28% of S&P’s market cap in Q1 of 2024 (Liu, 2024). Holding nearly 1/3 of this index could be bad news for some investors, as a drop in prices would directly drag down a vast number of portfolios and indexes.
Nvidia’s recent spike in prices has led some investors to theorize that the tech giant is a bubble. When a company is described as a bubble, it means some believe the rapid rise in prices will soon and suddenly drop down or “pop”. The Nasdaq reports that a section of the market feels that Nvidia’s stock is overvalued and that there may be another event like the “dot-com” bubble in the late 90s (Oberia, 2024). Like Nvidia, tech stocks were booming in 1999 before they rapidly contracted and sunk in price. In contrast to this belief, many others, including the CEO of JPM, Jamie Dimon, feel that this is a completely different situation, and is not a bubble. After this statement, he doubled down, saying that this type of AI will be used in every field of work and won’t just disappear after the hype is over (Vena, 2024).
It’s impossible to be sure of where the market will be within the coming months. Each day is one step closer to a new outcome within the markets, and this fact holds true globally. Expert opinions contradict each other in an endless cycle of guessing, and there is no telling what will happen until it does. One undeniable fact is that Nvidia has an extremely tight hold on a massive portion of the U.S. market, and its impressive growth makes it impossible to ignore.
Works Cited
Chen, J. (n.d.). Mega Cap: Companies with market caps above $200 billion. Investopedia. https://www.investopedia.com/terms/m/megacap.asp#:~:text=Mega%20cap%20companies%20are%20those,based%20on%20their%20stock%20performance.
Corbyn, Z., & Morris, B. (2023, May 30). Nvidia: The Chip Maker that became an AI superpower. BBC News. https://www.bbc.com/news/business-65675027
Forbes Magazine. (2013, June 19). America’s best big companies. Forbes. https://www.forbes.com/2007/12/20/best-big-companies-biz-cz_08platinum_bz_1220intro.html
Graphics Processing Unit (GPU): Everything you need to know. WEKA. (2024, February 2). https://www.weka.io/learn/gpu/what-is-a-gpu/
Irwin, K. (2023, March 27). Nvidia says crypto adds nothing to society, despite profiting from mining. Yahoo! Finance. https://finance.yahoo.com/news/nvidia-says-crypto-adds-nothing-185713557.html
Johnston, M. (n.d.). 4 companies owned by Nvidia. Investopedia. https://www.investopedia.com/5-companies-owned-by-nvda-5092734
Kharif, O., & Pan, D. (2022, June 16). Ethereum (ETH) mining tweak leaves some crypto tech in need of new use. Bloomberg.com. https://www.bloomberg.com/news/articles/2022-06-16/ethereum-mining-tweak-renders-some-crypto-tech-worthless?leadSource=uverify+wall
Liu, E. (n.d.). What’s behind the S&P 500’s spectacular gains, in 4 charts. Barron’s. https://www.barrons.com/articles/nvidia-stocks-gains-market-e3fa828a
Nvidia Corporation: History. NVIDIA. (n.d.). https://www.nvidia.com/en-us/about-nvidia/corporate-timeline/
NVIDIA Corporation Securities Litigation. Securities class action clearinghouse: Case page. (n.d.). https://securities.stanford.edu/filings-case.html?id=104095
Nvidia history: Founding, timeline, and milestones. Zippia. (2023, July 21). https://www.zippia.com/nvidia-careers-8376/history/
Oberoi, M., & Barchart. With headquarters in the heart of Chicago’s financial district. (n.d.). As “ai bubble” chatter grows, is Nvidia stock overvalued? Nasdaq. https://www.nasdaq.com/articles/as-ai-bubble-chatter-grows-is-nvidia-stock-overvalued
Sarkar, S. (2016, July 28). Nvidia agrees to settlement in lawsuit for GTX 970 False Advertising (update). Polygon. https://www.polygon.com/2016/7/28/12315238/nvidia-gtx-970-lawsuit-settlement
Seth, S. (2023, August 16). GPU usage in cryptocurrency mining. Investopedia. https://www.investopedia.com/tech/gpu-cryptocurrency-mining/
Vena, D. (2024, February 28). Unlike the internet bubble, Ai is “Not hype,” says JPMorgan CEO Jamie Dimon. 1 stock to buy hand over fist if he’s right. Yahoo! Finance. https://finance.yahoo.com/news/unlike-internet-bubble-ai-not-205450263.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAB6oxdCwbMkOYs7XcHv6bKCTJDKgszzJL3YjFAnoQldvdPLqc5cifr0GQ0nah8cvDHeEnM1eBBABnssgFLf-EUqk3xNRIxKKSHFkcdJ6GRsiCJa4CKuJMVLBSbiKqmNl8LHmlCtVGM_TE0vdzmxuqvoPwXBQ04FsgxNRHId7I8
Witt, S. (2023, November 27). How Jensen Huang’s Nvidia is powering the A.I. Revolution. The New Yorker. https://www.newyorker.com/magazine/2023/12/04/how-jensen-huangs-nvidia-is-powering-the-ai-revolution
