How Nvidia surpassed Apple to become the second most valuable company in the world.
Nvidia, the powerhouse in the chip-making industry, has reached an unprecedented milestone by overtaking Apple to become the second-most valuable company in the U.S. market. This marks the first time since 2002 that Nvidia has surpassed Apple, highlighting its remarkable growth trajectory in recent years.
Let’s get the numbers out of the way before diving into what’s driving this incredible growth. Nvidia’s shares soared by 5.2% on Wednesday, 5 June 2024, boosting its market capitalisation to a staggering USD 3.02 trillion (EUR 2.9 trillion). This leap catapulted Nvidia past Apple, securing its position as the world’s second-largest company, right behind Microsoft, which held a market cap of USD 3.15 trillion. This milestone moment happened just a day before Nvidia’s highly anticipated 10-for-1 share split, which likely spurred investors to seize the opportunity.
NVIDIA’S 10-FOR-1 STOCK SPLIT
For those wondering what a stock split is, here’s a quick rundown: Investors who owned Nvidia’s stock at the end of Thursday, 6 June, received nine additional shares for each share they held. This move sliced the share price to a tenth of its previous value at the closing price on Friday 7, June. Nvidia’s stocks took a brief pause in trading during this transition and resumed on Monday, 10 June, when the US markets opened. The main goal of a stock split is to make shares more affordable for a wider range of investors. While this manoeuvre lowers the price per share, it doesn’t change the company’s overall market value or valuation.
WHAT HAS BEEN THE DRIVER OF THIS GROWTH?
Nvidia’s GPUs, or Graphics Processing Units, have become the go-to hardware for companies diving into AI, thanks to their ability to crunch vast amounts of data and handle complex algorithms with ease.
Up until the end of 2023, Nvidia dominated the GPU market with an impressive 87% share. The AI boom provided the final push needed to leap past Apple. However, Nvidia’s ascension might have happened even without this boom. The company had plans to acquire ARM (Advanced RISC Machines, one of the most widely licensed processor cores), a move that would have revolutionised the tech landscape. If the acquisition had gone through, Nvidia could have easily overtaken Apple and possibly Microsoft too. Apple, in that scenario, would have had to pay Nvidia a licensing fee for ARM technology.
Companies in the AI race must get their hands on these advanced chips to stay competitive. Major tech players like Alphabet (Google’s parent company), Tesla, Microsoft, Amazon, Meta Platforms (formerly Facebook), and OpenAI are heavily dependent on Nvidia’s AI chips. Nvidia’s CFO, Colette Kress, revealed that nearly 45% of the company’s Data Centre revenue comes from these major cloud service providers. There’s especially high demand for Nvidia’s H100 chips, partly driven by Meta’s deployment of the Llama 3 AI model.
On another front, Tesla CEO Elon Musk has prioritised Nvidia’s H100 GPUs for his social media platform X and his AI startup xAI, over even Tesla. Founded in July 2023, xAI focuses on developing chatbots and AI-powered tools, directly competing with companies like OpenAI. Musk announced that Tesla would invest USD 10 billion (EUR 9.2 billion) this year in AI training and inference, highlighting Nvidia’s critical role in his tech ventures.
Investors have flocked to Nvidia’s stock as tech groups such as Google, Microsoft, and Meta spend billions of dollars on its chips, with no indication that their spending spree will slow in the near future. Nvidia’s data centre chips power the AI models that CEO Jensen Huang has claimed will spur a new industrial revolution, transforming global business with productivity-enhancing features.
SPEARHEADING THIS TRANSFORMATION: CEO JENSEN HUANG
Leading this remarkable transformation is Nvidia’s visionary CEO, Jensen Huang. Under his guidance, Nvidia has expanded its product lineup, executed strategic acquisitions, and forged vital partnerships, cementing its leadership in the AI chip market. Huang’s foresight in leveraging AI to transform industries has struck a chord with investors, significantly boosting the company’s stock value.
Huang has expressed confidence that Nvidia’s new supercomputing AI GPU, Blackwell, will drive the company’s next growth phase. He stated, “We are poised for our next wave of growth. The Blackwell platform is in full production and serves as the cornerstone for trillion-parameter-scale generative AI.”
The rocket fuel behind Nvidia’s skyrocketing success is its groundbreaking work in AI chips. These chips are the heart and soul of AI systems, providing the heavy-duty computational power needed for machine learning, training massive language models, and supercomputing tasks.
CONTRASTS WITH APPLE’S STRUGGLES
While Nvidia rides a wave of AI enthusiasm on Wall Street, Apple is struggling with weak demand for iPhones and tough competition in China, the world’s biggest smartphone market. Some investors also view Apple as lagging behind other technology heavyweights as they rush to build AI features into their products and services. Apple’s growth has been slower, with its stock rising only 5% this year, compared to Nvidia’s astounding 147% increase.
FUTURE PROJECTIONS AND MARKET IMPACT
Analysts’ projections for Nvidia’s future earnings have outpaced its stellar stock gains. Nvidia is trading at 39 times expected earnings, making it less expensive on that basis than a year ago, when it traded at over 70 times expected earnings, according to data presented by the London Stock Exchange Group (LSEG).
The implications of Nvidia’s rise are profound for the tech industry. It highlights the growing importance of AI and the pivotal role semiconductor companies play in this evolving ecosystem. As AI continues to develop and integrate into various sectors, the demand for advanced chips is expected to surge, potentially driving Nvidia’s value even higher.
Nvidia’s accomplishment of surpassing Apple as the world’s second most valuable company marks a historic milestone in the tech industry. The company’s innovative AI chips have not only fueled its financial success but also positioned it at the forefront of the AI revolution. As Nvidia continues to innovate and expand, its influence on the tech industry is likely to grow, heralding a new era where AI and semiconductor technology are paramount.
While we once thought we knew who the winners and losers were in tech, the rise of AI is making us rethink everything, rolling the dice once again.
