Nvidia Temporarily Becomes First Chipmaker to Hit $1 Trillion in Value

Nvidia corporate headquarters in Santa Clara, Calif., in May 2022. Courtesy NVIDIA/Handout via Reuters

Nvidia became the first chipmaker to be valued at over a $1 trillion, before falling in trading later in the day.

The U.S. chipmaker’s market value rose 3 percent, to $401.15 on May 30, after tripling in value since October, due to its successful investments in Artificial Intelligence, as investors pile on to the firm.

The company needed to hold above $404.86 to remain at the trillion-dollar threshold.

Over the past year, there has been a massive surge in interest in generative artifical intelligence (AI), which can engage in human-like conversation or write things ranging from analytical reports to poetry.

Nvidia Surges Ahead in Chip Manufacturing Race

Meanwhile, the rapid success of OpenAI-owned ChatGPT has prompted tech giants such as Alphabet and Microsoft to make the most of the new technology.

Nvidia became the ninth public company to ever hit the $1 trillion level mark, joining tech giants  Microsoft, Alphabet, Amazon, and Apple.

The year 2023 has so far been good for chipmakers, parts of the tech industry, and the Nasdaq Index due to optimism that the Federal Reserve will slow down its interest-rate hikes and because of major advancements in AI technology.

The Santa Clara-based chipmaker has far outpaced other firms on the benchmark S&P 500 Index, with its valuation surpassing its peers.

Some analysts say the AI boom may lead to its stock to rise even more, with the highest given estimate at about $1.6 trillion, which is on par with Alphabet.

The firm’s forward price-to-earnings multiple (P/E), a common benchmark for valuing stocks, is 47.49. well above that of peers Qualcomm and Intel, while also topping the sector median of 18.09, according to Refinitiv.

“There’s a war going on out there in AI, and Nvidia today is the only arms dealer out there. So as a result, we’re seeing this huge jump in revenues,” Raymond James managing director Srini Pajjuri said in a note to investors.

With Big Tech companies shifting their focus to generative AI, there has been a massive rise in demand for graphics-processing units (GPUs) chips, 80 percent of which are produced by Nvidia.

GPU Chips in High Demand Due to Advancements in AI

Last week, Nvidia forecast $11 billion in sales for the second quarter of fiscal 2024 alone, significantly higher than the consensus estimate of $7.15 billion.

“We thought if they beat the guidance by about 5 percent, that’s good enough for the stock to stay where it is. But they’re beating [the] guidance consensus by 50 percent,” said Pajjuri.

The boost in stock lifted all other chipmakers as well, with the exception of its U.S. rival, Intel, which has failed to gain as much investor interest in comparison to Nvidia due to inventory and development issues.

Intel traditionally has been a supplier of central processing units (CPUs), but Nvidia’s GPUs are essential for generative AI platforms like OpenAI’s ChatGPT and Google’s Bard.

Until recently, the primary use of GPU chips were for computer and video gaming, but this all changed when AI development and crypto mining transformed the entire future of the industry.

GPU manufacturers and suppliers, such as Nvidia, AMD, and Taiwan Semiconductor Manufacturing, have seen their share prices rise significantly over the last few months.

Nvidia CEO Jensen Huang pivoted the company from its original focus on videogame graphics cards toward the data center market over the last few years.

During the pandemic, the company’s revenue surged, when more people took to video gaming, while cloud use surged and crypto enthusiasts turned to its chips for mining crypto.

Analysts believe that the chipmaker’s investment into the AI tech sector is expected to more fuel growth in the coming months, as it spreads into mainstream use.

Reuters contributed to this report.