How Nvidia has surpassed Apple, Microsoft

Since its IPO in 1999, Nvidia’s stock price has increased nearly 6,000 times, reaching the highest capitalization in the world.

CEO Nvidia Jensen Huang. Photo: Bloomberg.

In 1999, Intel still dominated the semiconductor sector, and Nvidia first appeared on the Nasdaq exchange. Less than three years later, the company joined the S&P 500, replacing Enron.

However, few people thought that Nvidia could maintain its growth momentum for a quarter of a century, with shares rising 591,078%. Much of the growth comes from the artificial intelligence (AI) craze, where investors see Nvidia as the most successful in producing technology-enabled chips.

On June 18, the growth momentum peaked when Nvidia surpassed Microsoft, becoming the world’s most valuable company with a market capitalization of $3.340 trillion.

There is no guarantee that Nvidia can hold its position for the long term. To do this, customers need to continue to spend billions of dollars each quarter to invest in AI infrastructure. However, CEO Jensen Huang affirmed that Nvidia is ready to respond when needs change.

Early years

“I think the management team makes the biggest contribution. They’ve captured each wave of hardware innovation perfectly,” said Brian Mulberry, Head of Client Portfolio at investment research firm Zacks Investment Management.

From its IPO in 1999 to its entry into the S&P 500 in 2001, Nvidia’s stock rose more than 1,600 percent, to a capitalization of about $8 billion. This growth momentum took place in the context of technology stocks plunging after bursting the dot-com bubble.

Nvidia’s capitalization in the period 1999-2007, the early years after the IPO. Photo: Bloomberg.

According to Bloomberg, the key to Nvidia’s initial success was integrating the technology into Microsoft Xbox and Sony PlayStation game consoles. Nvidia’s graphics processing unit (GPU) has become a sought-after item for gamers because of its high performance, providing a realistic experience.

Rhys Williams, chief strategy officer at Wayve Capital Management, appreciates CEO Jensen Huang’s vision.

“Jensen tells a beautiful story, and it’s clear that GPUs are increasingly important. Each new generation of hardware improves performance, realistic visuals, and ushers in a new era for PC gaming,” Williams emphasized.

Difficult period

After the first period of success, the next 6 years witnessed many turbulences. Nvidia shares fell in 2008 due to the financial crisis that weakened demand, at the same time rival AMD swelled.

The deal between Intel and Nvidia forced the company to leave one of its largest markets. After litigation, in 2011, Intel signed a $1.5 billion contract with Nvidia to share the technology rights between the two companies.

Nvidia’s market capitalization in the period 2008-2014, when facing litigation and rival rising. Photo: Bloomberg.

A year later, Nvidia introduced GPUs for data center servers, which support complex tasks such as oil and gas exploration and weather forecasting.

This is the premise to help Nvidia gain a foothold in the lucrative market later. However, those chips could not help break through as soon as it was nearly 9 years later, Nvidia shares broke the peak set in 2007.

Nvidia shares rose again in 2015, the period when the company’s GPUs were the foundation for many new technologies such as modern graphics interfaces, self-driving cars to a wave of AI products.

Nvidia’s market capitalization in the period 2015-2021, in the midst of cryptocurrency trends and the Covid-19 pandemic. Photo: Bloomberg.

Shana Sissel, CEO of investment firm Banrion Capital Management, was one of the first to notice Nvidia. At a 2017 conference, she described Nvidia as a “king” rather than an investment idea.

“Every speaker thinks that Nvidia is the most important company. At that time, they were really on my radar,” Sissel emphasized.

Standing firm and growing strongly

Even as demand for cryptocurrency mining GPUs declines, Nvidia’s sales of data center chips have always increased sharply. The Covid-19 pandemic has created a great motivation when companies need to increase server power and serve remote work.

In the 2017-2021 fiscal year, Nvidia’s data center chip sales increased 8 times, Bloomberg said.

Inevitably the general trend of the technology industry, Nvidia shares declined in 2022 due to rising interest rates and weakening demand after the epidemic period.

Nvidia’s capitalization in the 2022-2024 period, the time of the AI trend boom. Photo: Bloomberg.

The attention for Nvidia returned when ChatGPT launched at the end of 2022. However, it still takes some time for investors to realize that Nvidia is the biggest beneficiary.

Finally, interest in generative AI tools like ChatGPT is growing, causing orders for Nvidia chips to skyrocket. The revenue growth shared by the company in May 2023 exceeded all of Wall Street’s most optimistic estimates.

In fiscal year 2023, Nvidia’s data center GPU sales completely overshadowed gaming GPUs. Analysts forecast that the company’s revenue in fiscal year 2024 will exceed $100 billion, a sharp increase compared to 2023 ($61 billion).

“Nvidia has a very strong position in the industry. Obviously they can’t keep a 95% market share forever, but almost no one can replace them,” Williams emphasized.