Nvidia (NASDAQ: NVDA) has established itself as a dominant force in the artificial intelligence (AI) sector. Its state-of-the-art graphics processing units (GPUs) serve as the backbone for servers powering cutting-edge AI applications.
Within the high-margin niche of GPUs tailored for AI and accelerated computing, Nvidia currently claims a staggering 90% share of the market. Despite efforts by rivals like Advanced Micro Devices and Intel to enhance their presence in the ultra-high-performance GPU realm, analysts widely anticipate Nvidia’s continued supremacy in this realm.
Delivering stellar performances and backed by a robust growth forecast from management, Nvidia’s stock has surged by 240% in the past year and is already up 82% in 2024.
These surges have propelled Nvidia’s market capitalization to around $2.27 trillion, positioning it as the world’s third most valuable company and the third-ranking member of the esteemed “Magnificent Seven.” Apple, holding the second spot, boasts a market cap of $2.65 trillion, with tech behemoth Microsoft leading at approximately $3.12 trillion.
Is Nvidia poised to snatch the title of the world’s most valuable company?
The Dominance of Nvidia in the AI Arena
The surge in advancements in artificial intelligence technologies, which commenced in late 2022, has accelerated rapidly. This progression ramped up significantly throughout 2023 and continues unabated this year.
As businesses and organizations scramble to tap into the AI domain, the demand for Nvidia’s cutting-edge processors has skyrocketed. Its sales and earnings have surged to unprecedented heights.
In the last quarter of the previous year, the company’s sales soared by 265% year-over-year to $22.16 billion. Bolstered by remarkable growth in the latter half of 2023, Nvidia’s annual sales surged by 126% to $60.9 billion.
NVDA Net Income (TTM) data by YCharts.
Nvidia recorded $29.76 billion in net income last year, equivalent to 49% of its total sales. This impressive net income margin for a hardware-centric business, which typically experiences lower margins relative to software-centric firms due to the elevated incremental costs tied to physical goods production, underscores the tremendous demand for Nvidia’s GPUs at present.
While Nvidia’s remarkable growth is expected to taper, the firm seems well-positioned to outpace Apple and Microsoft in growth over the forthcoming years.
The Potential Ascendancy of Nvidia Over Tech Giants
Despite Apple and Microsoft generating significantly higher revenue and net income figures than Nvidia currently, the chip powerhouse seems primed to be the preeminent beneficiary of the ongoing AI revolution, growing at a far swifter pace compared to the larger tech titans.
By comparison, Microsoft saw a sales growth of about 10% over the last twelve months and a net income increase of 20%. Meanwhile, Apple’s revenue remained stagnant during that period, although its net income did rise by 7%.
If the demand for AI services sees a substantial boost, it’s plausible that Nvidia could overtake Apple in market capitalization and dethrone Microsoft as the world’s foremost valuable company within the next five years. While Nvidia’s business traditionally experiences fluctuations influenced by cyclical trends, it appears to be in the initial stages of reaping the benefits of the unfolding AI revolution.
Currently, Nvidia is capitalizing on an unparalleled technological emergence, and that implies projecting its trajectory over the next half-decade entails a significant degree of conjecture. Yet, given its remarkable sales and earnings momentum coupled with the overarching market enthusiasm for AI applications, witnessing Nvidia claim the mantle of the globe’s most valuable entity would not be an astonishment.