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Nvidia has risen to become the most valuable publicly traded company in the U.S. due to the high demand for its AI chips, driving a tech surge reminiscent of the early 2000s boom.
Nvidia’s chips have been crucial to the AI boom, serving as essential tools in developing advanced AI systems. These systems have fascinated the public with their capability to generate coherent text, images, and audio with minimal input.
The previous instance of a major computing infrastructure provider being the most valuable U.S. company was in March 2000, when networking-equipment company Cisco held that position at the peak of the dot-com boom.
Cisco rode the wave of the internet revolution, with its products fueling the emerging industry. Similar to Nvidia, Cisco also surpassed Microsoft to become the most valuable company.
John Chambers, former CEO of Cisco during the dot-com boom, acknowledged some similarities but noted that the AI revolution has different dynamics compared to past revolutions like the internet and cloud computing. Now a venture investor, Chambers has heavily invested in AI for cybersecurity and other fields.
He mentioned that the market potential of AI is comparable to that of both the internet and cloud computing combined. He emphasized differences in the rate of change, the scale of the market, and the timing of when a company becomes the most valuable.
On Tuesday, Nvidia, a company founded 31 years ago, became the world's most valuable company. The closing stock price was $135.58, giving the chip manufacturer a market capitalization of $3.335 trillion, slightly surpassing Microsoft at $3.317 trillion.
This is the first instance since February 2019, when Amazon.com briefly held the position, that a company other than Microsoft or Apple has become the largest by market valuation. Nvidia ranked fifth largest by market valuation a year ago and tenth largest two years ago. Just five years ago, it did not rank among the top 20 largest companies.
Tech giants like Microsoft, Meta, and Amazon are aggressively competing to advance AI development and reap its anticipated rewards. This competition has sparked a surge in chip purchases, driving Nvidia's revenue to record levels. In its most recent quarter, Nvidia generated $26 billion in revenue, more than three times the amount from the same period a year earlier.
In 2023, Nvidia's stock was the top performer in the S&P 500, increasing in value by more than threefold over the past year. The company's market capitalization reached $3 trillion this month, achieving this milestone less than four months after reaching the $2 trillion mark. This month, Nvidia executed a 10-for-1 stock split to reduce the price per share and broaden accessibility for investors.
The impressive ascent has earned praise from analysts who support CEO Jensen Huang's view that AI represents a cornerstone of a new industrial revolution, with Nvidia playing a pivotal role as a primary supplier. Huang describes Nvidia as constructing "AI factories" that ingest data and generate intelligence.
Recently, CFRA Research analyst Angelo Zino stated that Nvidia will be critically significant to our society in the coming decade as the world increasingly relies on AI. Zino emphasized that the chips developed by Nvidia will be among the most groundbreaking inventions of this century.
Investors are wary as the continuous influx of funds into AI raises concerns about whether the boom can sustain its momentum. According to a March estimate by Sequoia Capital, approximately $50 billion has been invested in Nvidia's chips since the start of the boom. However, startups focused on generative AI have generated only $3 billion in sales.
At that time, Sequoia partner Sonya Huang commented that this disparity indicated significant challenges that need to be addressed.
On Monday, Capital Economics' chief economist Neil Shearing warned that the excitement surrounding AI exhibits characteristics typical of an expanding bubble. He predicted that this enthusiasm could drive U.S. stocks higher over the next eighteen months. However, Shearing cautioned that the bubble would eventually burst, leading to a period where the U.S. market would likely experience notable underperformance.
Nvidia and its CEO, Huang, appear unperturbed despite facing various challenges, including strong competition and increased regulatory scrutiny over the company's dominant position in the AI-chip market, where analysts estimate its market share exceeds 80%.
As the stock price has surged, he has acquired a level of celebrity typically associated with pop singers and athletes, rather than with 61-year-old tech executives. At Nvidia's annual conference in March, Huang delivered his keynote speech on a stage in an arena that can accommodate 11,000 people. In Taiwan, he was photographed signing a woman's shirt.
Chambers noted that Huang is navigating Nvidia's trajectory with strategies distinct from Cisco's, yet encountering comparable obstacles. Similar to Cisco's market dominance during the internet's expansion, Nvidia faces strong competition despite its leading position. Additionally, both companies benefited from early investments that preceded industry profitability. Chambers emphasized Cisco's strategic timing and readiness during their pivotal growth phase.