The Sudden Buzz Surrounding Nvidia: The Trillion-Dollar Company Leading the AI Revolution

The corporate world is increasingly relying on artificial intelligence to emerge as the next major trend, and has discovered itself leaning towards one creator of computer chips specifically — Nvidia — to fuel the revolution.

Starting in 1993, the company based in Santa Clara, California, has been developing programmable chips that assist in operating a variety of consumer-facing applications.

While Intel and Advanced Micro Devices had held sway over the U.S. chip industry for many years, Nvidia’s entrance marked the rise of advanced graphics processing units (GPUs), which were more adept at rendering images. This ability grew in significance as high-quality video began to dominate the technology and media environment.

In the beginning, Nvidia was primarily linked with supplying GPU processors for video game consoles such as the Microsoft Xbox and Sony PlayStation.

The overall expansion of Silicon Valley during the 2010s drove Nvidia to diversify and enhance its fortunes. For instance, in 2014, Nvidia and Google announced a collaboration to utilize Nvidia chips in Google Chromebooks.

Car manufacturers also began utilizing Nvidia chips for driver-assistance software reliant on GPUs to handle image data from sensors. Nvidia hardware can also be found in all Tesla automobiles.

Throughout the pandemic, the shift to remote work and subsequent need for data centers capable of facilitating cloud-based computing — as well as increased interest in video games while individuals were confined indoors — expedited Nvidia’s revenues even further.

Nevertheless, the company’s $22 billion in annual revenues in 2022 remained overshadowed by competitor Intel’s $63 billion that year.

It was only within the last eighteen months or so that Nvidia’s prospects took a meteoric rise with the arrival of the artificial intelligence revolution.

The chips that Nvidia specializes in, known as “discrete” GPUs, focus on what is termed parallel computing, a type of computing where multiple operations are executed concurrently. In contrast, CPUs carry out programs sequentially. The type of computing GPUs handle is hence more efficient and valuable than CPUs.

Developers have realized that Nvidia’s GPUs are significantly better suited for programming AI software.

Bloomberg News has labeled Nvidia’s chips as the “workhorse for training AI models,” and PNC Financial Services Group analyst Amanda Agati described Nvidia’s leadership in the sector last autumn, based on its valuation, as a “quasi monopoly.”

Therefore, Nvidia can attribute some of its success to being at the forefront of the technology that AI applications now rely on.

Presently, virtually every major technology company, including Amazon, Google, Meta, Microsoft, and Oracle, has employed Nvidia chips.

Last Thursday, Nvidia announced earnings and revenues that significantly surpassed market expectations, helping elevate the company’s overall value beyond $2 trillion, trailing only Microsoft and Apple among the largest U.S. firms.

“Accelerated computing and generative AI have reached a turning point,” Nvidia CEO and co-founder Jensen Huang stated in the earnings release. “Demand is escalating worldwide across companies, industries, and nations.”

According to Goldman Sachs, about $1.7 trillion of the market capitalization surge occurred over the past sixteen months alone. Huang acknowledged in an interview with CNBC last year that a blend of luck and expertise contributed to the company’s success.

“We simply believed that someday something new would transpire, and everything else necessitates some serendipity,” Huang remarked. “It wasn’t foresight. The foresight was accelerated computing.”

For Moody’s Senior Vice President Raj Joshi, Nvidia embodies the “dominant” infrastructure player behind the current ascent of the AI industry.

While other chip manufacturers are laboring to catch up to Nvidia, the company’s thirty years of GPU specialization — in contrast to a competitor like Intel, which has traditionally focused on CPUs — represents a substantial advantage, he stated.

“This burgeoning field [AI] is better supported by GPUs,” Joshi conveyed in an interview with NBC News, adding: “Nvidia is establishing the groundwork for it in most scenarios.”

Nvidia also provides solutions for other sectors, such as healthcare, that are not explicitly tech-focused, Joshi noted.

“They hold a significant lead in these markets,” he remarked.

Nvidia’s specialization allows it to command a premium for its products. In fact, its chips, manufactured in Taiwan, are so distinctive that companies aiming to build AI capabilities are lamenting a shortage of them.

While the Biden administration’s 2022 CHIPS and Science Act is formulated to foster the development of GPUs — and do so within U.S. borders — worries are already arising about staying abreast of market dynamics.

“The amount of chips that [AI companies] forecast they require is staggering,” U.S. Commerce Secretary Gina Raimondo articulated this week. She suggested that even more federal subsidies would be necessary if the U.S. wished to be a meaningful participant in chip production.

“I expect there will have to be — whether you name it ‘CHIPS Two’ or something else — sustained investment if we plan to lead globally,” Raimondo remarked during a virtual appearance at an Intel event. “We fell back significantly. We took our eye off the objective.”

Meanwhile, investor enthusiasm for Nvidia continues to be frenetic. Although a few have speculated that its success could be a bubble, the majority of Wall Street analysts contend that its financial statements have validated the viability of its product.

“The vitality of their core data center business is undeniably remarkable,” Goldman Sachs’ Tony Pasquariello wrote in a client memo last Friday.

Since Nvidia is now considerably more valuable, its financial results carry more weight for the broader stock market, specifically the S&P 500 index. According to Agati, who serves as chief investment officer and managing executive for investments at PNC, Nvidia alone accounted for 60% of the earnings growth among all S&P 500 companies for the most recent quarter.

In simpler terms, for the time being, as Nvidia goes, so goes the market, which could be a financial blessing for consumers who possess investments in the stock market — whether individually or through their retirement accounts.

“[Nvidia] has turned into a vital component of the market’s trajectory forward,” Agati stated in an email to NBC News, further adding: “In the assertion ‘data is the contemporary oil,’ Nvidia persistently demonstrates it stands in a class of its own.”

This story was initially featured on NBCNews.com

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