Competition for the title of world’s most valuable company is heating up. Earlier this week Nvidia (NASDAQ:NVDA)after its monstrous run of recent years, has taken a leap forward Microsoft And Apple to become the largest company in the world by market capitalization (market capitalization), the total value of all of a company’s publicly traded shares.
After dominating its competitors, Nvidia returned to third place, but that’s no reason to worry. It’s a close race and the three will likely trade places for a while. The next set of results later this summer will be a major catalyst that could move the needle to a more stable place if any of the companies beat their own forecasts and Wall Street’s expectations – or fail.
No investment theme is more popular right now than artificial intelligence (AI) and Nvidia is its poster child. Investors are salivating over the incredible returns the company consistently generates quarter after quarter – its revenue last quarter was up 260% year over year – with the promise of continued growth in the future. Its rapid rise since AI came to public attention is one for the record books. But what should investors pay attention to in the long term?
Understand what makes Nvidia special
Nvidia has a unique position in the market. The company was so far ahead that it was able to capture about 80% of the AI ​​chip manufacturing industry.
Of course, like most successful businesses, it was a matter of a little luck and a lot of foresight. CEO Jensen Huang made a bet. Nvidia made chips called graphics processing units (GPUs) that were, for much of the company’s history, accessories to the all-powerful central processing unit (CPU) that made Intel What it was. He saw that the industry was reaching the limits of processor technology evolution and that his company’s GPUs could move into the spotlight.
Turns out he was right. Without going into too much technical detail, if you focus on chips that look a lot like GPUs – like the company’s Grace Blackwell “Superchip” – with CPUs playing a supporting role, you can run power-hungry applications and continue to scale them. And AI is undoubtedly power hungry.
Nvidia doubled down on this technology before it was trendy, so when AI exploded onto the scene, the company was already there, providing its technology to the entire industry. Now, AI servers run by companies like Alphabet, Amazonand Microsoft are powered by Nvidia chips.
It is essential that AI happens – and when –
Nvidia has grown from a relatively specialized computer company, working primarily in the video game industry, to one of the largest companies in the world. Just look at this reversal of fortune from once-dominant processor maker Intel. The chart shows the revenue of both companies over the past 10 years. Last 12 months (TTM) base.
It’s a twist of fate. But destiny can be capricious. Nvidia’s future largely depends on whether AI can deliver on its promises. Much has been made of its revolutionary power, but much remains to be proven. This wouldn’t be the first time a technology has failed to live up to the hype surrounding it. Still, I think there’s more reason to believe AI isn’t a fluke than some past hype cycles, so it’s a question of when it might be effective.
If the AI ​​value chain is a river, Nvidia sits somewhere in the middle, upstream from the companies that actually deliver AI products to the end market. If these companies over-promise on the value of their products or cannot deliver on time, the river will be dammed downstream, potentially leading to a glut of unwanted chips. For Nvidia to continue the incredible growth it has experienced, enough to justify the premium value investors have placed on it, end-user demand must allow the river to flow freely.
Keep an eye on the performance of end-user AI applications. Try some. Do you see the value? The more useful these tools are, the higher the river watermark and the more likely Nvidia will be to meet its sky-high expectations.
Should you invest $1,000 in Nvidia right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Amazon, Apple, Microsoft and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short $405 calls in January 2026 on Microsoft. The Motley Fool has a disclosure policy.
Nvidia is no longer the most valuable company in the world. Here’s what investors need to know. was originally published by The Motley Fool
