On April 5, 1993, Jensen Huang, Chris Malachowsky, and Curtis Priem founded Nvidia with the intention of bringing 3D graphics into the gaming and multimedia markets. Fast forward to now, and Nvidia has significantly expanded its reach, with its main contribution being the creation of the Graphics Processing Unit (GPU) in 1999 [1]. At the forefront of Nvidia’s growth since its creation is Jensen Huang, who graduated from Oregon State University with a bachelor’s degree in electrical engineering as well as Stanford University with a master’s degree in electrical engineering [2]. Since helping to co-found the company, Mr. Huang has served as the company’s president, chief executive officer, and a member of the board of directors [2]. He is now helping Nvidia drive the platform shift of accelerated computing and generative AI through their world-class GPUs [2].
These GPUs, branded by Nvidia as the GeForce and powered by their proprietary architecture, are renowned for their high-performance computing capabilities and have evolved over the years since their creation [3]. To expand further, the GeForce, which has had multiple iterations since its creation, is a GPU that brings transformative AI capabilities to gaming, creating, and everyday productivity [3]. As the era of AI has arisen, they have served as the fuel allowing for its rapid growth and advancement. These GPUs also utilize CUDA, which “is a parallel computing platform and programming model developed by NVIDIA for general computing [4]." This makes them particularly indispensable for applications requiring complex calculations and simulations, such as Large Language Models (LLM) in the AI field that look to advance and achieve faster and more extensive computational abilities. As the GPUs produced by Nvidia continue to advance and grow in their abilities, expect the possibilities of what the AI industry can accomplish to expand with it.
With their role in the developing AI world continuing to rise as the industry grows, Nvidia has seen record-breaking growth, especially over the last year. Since September 21, 2023, Nvidia’s share price has grown from $410.17 to $906.16 as of April 11, 2024, after the market’s close [5]. They have also seen exponential growth in other key metrics over the last year, such as a 732.40% increase in EBITDA, a 768.81% increase in net income, and a 486.36% increase in earnings per share [5]. On February 26, 2024, they even set a record by adding $277 billion in stock market value due to their quarterly reporting beating expectations [6]. This represented the largest one-day gain in Wall Street history. A large portion of the growth we have seen stems from Nvidia’s compute and networking division due to its rise to serve as Nvidia’s top source of revenue [7] [8]. This has subsequently led to an uptick in Nvidia’s stock price. The rise and development of various artificial intelligence providers in the industry largely contribute to this. These providers require the GPUs produced by this division, as I hinted at earlier, and have generated a large amount of excitement surrounding the industry.
While the growth over the last year has been impressive, it is also important to note that Nvidia has faced some struggles as of late. As of the morning of April 10th, Nvidia’s stock has fallen almost 10% from the all-time high it achieved of $950.02 per share on March 25, 2024 [5] [9]. This constitutes a market correction, which “is generally considered to be a sustained drop of 10% or more from all-time highs [9].” This news certainly casts a shadow over the state of Nvidia’s performance in the market currently, and reasons for the drop may stem from a variety of potential sources, such as investors exiting the market and taking profit after substantial gains or rival chipmakers releasing competing products. In my opinion, the market correction can likely be attributed to the latter as competitors have launched competing chips, such as Intel's Gaudi 3 AI Accelerator on April 9, 2024 [10]. These recent developments are certainly something for investors and market analysts to keep an eye on going forward.
Speaking of competitors, this is another issue coming into play for Nvidia now as they look to take a slice of the pie that Nvidia largely holds. One of their top competitors, as reported to the SEC by Nvidia, is Huawei, particularly in the area of Artificial Intelligence chips [11]. Founded in 1987 in Shenzhen, China, Huawei initially was created with the goal of acting as a rural sales agent for Hong Kong-based phone and cable network businesses [12]. Since then, they have extended their reach, expanding into metropolitan areas of China as the population exploded. They are beginning to compete in the artificial intelligence industry through chip production [12]. Nvidia claims that Huawei “competes in supplying chips for AI, including graphics processing units (GPUs), central processing units (CPUs), and networking chips [11]." Specifically, Huawei’s 910B chip directly competes with Nvidia’s A100 chip [11]. Furthermore, Huawei seems to be gaining an advantage in the Chinese market for AI chips as restrictions stemming from Nvidia being a US company harm their ability to compete in the market [13]. Nonetheless, Nvidia still can dominate the US market in competing with Huawei and is also succeeding in producing chips that are even stronger than the A100, such as the H100 [14] Additional competitors to Nvidia include Intel, Advanced Micro Devices, Broadcom, and Qualcomm [11]. Moreover, companies such as Microsoft that produce their own AI models are reportedly looking to build their own AI chips in-house, which would serve as a blow to Nvidia [15].
While the wide selection of competitors and potential changes in demand from customers serve as a threat, Nvidia remains in a spot where it can continue to grow. With their chips being used by almost all generative AI makers, including some of the largest players such as ChatGPT, Microsoft, and Google, Nvidia holds a large market share at 80% of the AI chip market, which will be difficult to strip from them [16]. Thus, while competition is a significant player that could impact Nvidia’s growth in the long run, its positioning in the market at the time sets it up to continue its growth for the foreseeable future.
Adding to Nvidia’s ability to combat competition that arises and other possible challenges is its ability to innovate. As the computational abilities of Nvidia’s chips have risen through innovations, the ability of the models created by their significant customers has risen as well. At the recent GTC 2024 conference, Nvidia announced the B200 chip, which promises “unparalleled performance in tasks such as chatbot responses [16]." This innovation continues a trend of Nvidia providing the basis for AI models to achieve and improve on the different tasks these companies, such as ChatGPT and Microsoft, seek for them to perform. If they can continue to provide innovations and breakthroughs that AI companies are looking for, it is safe to say Nvidia will be in control in the long run.
The innovations that led to Nvidia continuing to hold a large amount of market share in the chip market provide a bright outlook for their future. Combined with the continued growth of the AI market as companies seek to enter it and current providers roll out new models, such as Google releasing Gemini in December 2023, this outlook is strong [17]. The main challenge faced by Nvidia is the potential ceiling on innovations, as well as competitors producing higher-performing chips. However, at the time, we appear to be nowhere close to this ceiling and can have confidence in Nvidia due to their strong commitment to research and development around their chips. Furthermore, competitors seem relatively far from an opportunity to overtake the performance of Nvidia’s chips, especially when one factor in discussion is the ability for Nvidia to innovate.
As was previously stated, Nvidia draws a majority of its growth from its computing and networking division which produces its highly demanded GPUs. Most of the growth within this division stems from the current amount of high demand in the artificial intelligence industry. While it appears that the growth of this market segment does not appear to be slowing down anytime soon, to ensure more stable long-term growth, it would be beneficial for Nvidia to potentially grow its presence within other industries that utilize GPUs. These industries include the automotive industry, gaming industry, and robotics industry. While Nvidia is currently involved with each of these, growing their role and drawing larger portions of their revenue stream from these and others would help to create more confidence in Nvidia’s ability to grow in the long run as well as a sense of stability as they diversify their target industries.
Considering the plethora of positive signals regarding Nvidia’s continued growth along with the different paths to maintain their expanding value, I would strongly recommend buying Nvidia or holding if you already have a position. Since February 26, 2023, when Nvidia had its record-breaking day, the stock has not stopped growing, increasing from $790.92 then to $906 as of April 11, 2024 [16] [5]. Moreover, analysts at some of the most prominent banks in the world seem bullish on Nvidia’s future. For example, Morgan Stanley analyst Joseph Moore recently raised his price target to $1,000 for Nvidia, signaling yet another increase in the price of the stock from where it currently stands and potential gains of ∼10% [18]. Combining this information with the reasons aforementioned, along with the consistent growth of many of their key financial metrics as of late, such as revenue and net profit margin, the growth seems poised to continue. Therefore, while they still can, investors should buy Nvidia and reap the profits, as the train is full steam ahead and does not appear to be stopping any time soon.
All content is the intellectual property of the Virginia Undergraduate Business Review.
REFERENCES
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