(Bloomberg) — The year was 1999. Steve Jobs had recently returned to lead Apple. Intel was the dominant force in the semiconductor industry. And a little-known chipmaker named Nvidia debuted on the Nasdaq stock exchange.
Most read on Bloomberg
It took Nvidia Corp less than three years. to gain access to the S&P 500 – as a replacement for disgraced oil conglomerate Enron, no less.
But even then, few would have bet that the company would become the best-performing stock of the last quarter century, posting a total return of 591,078% since its IPO, including reinvested dividends. It’s a difficult number to understand and speaks, in part, to the financial madness surrounding artificial intelligence and the way investors have come to view Nvidia – which makes the cutting-edge chips that power the technology – as the biggest winner of the boom. .
On Tuesday, that run culminated when Nvidia toppled Microsoft Corp. as the world’s most valuable company with a market capitalization of $3.34 trillion. More than $2 trillion of that value was added this year.
The company’s rise to prominence was by no means assured, nor was its continued existence at the top of the S&P 500. Long-time Nvidia investors had to endure three annual collapses of 50% or more in the stock. To maintain the current recovery, customers will need to continue spending billions of dollars per quarter on AI equipment, the returns on which have so far been relatively low.
What ultimately paved the way for Nvidia to rise to the top was the company’s big bet on graphics chips and co-founder and CEO Jensen Huang’s vision that the industry would transition to what it called “accelerated computing”. something at which its tokens are inherently better than those of the competition.
“I think you have to give a tremendous amount of credit to the management team,” said Brian Mulberry, client portfolio manager at Zacks Investment Management. “They perfectly captured every wave of hardware innovation.”
Here’s a look at Nvidia from its IPO to now.
First years
Nvidia is off to a good start.
Between its debut and entry into the S&P 500, the stock gained more than 1,600%, giving it a market value of approximately $8 billion. This rise occurred as many other technology stocks collapsed in the wake of the dot-com bubble, which peaked in March 2000.
The key to the company’s initial success: integrating its technology into video game consoles like Microsoft’s Xbox and Sony’s PlayStation. Nvidia’s GeForce graphics processing units, or GPUs, became objects of desire among gamers because they consistently provided the most realistic experience.
“Jensen was always a great communicator, he told a good story and it was clear that GPUs were becoming more and more important,” said Rhys Williams, chief strategist at Wayve Capital Management, who was a buyer on the IPO. in stock exchange. “Each successive generation of hardware gave much better performance, a much more realistic picture and that’s when PC gaming really came into being.”
Litigation and Competition
The next six years were not kind to Nvidia. The stock plunged in 2008 as the financial crisis weakened demand and longtime rival Advanced Micro Devices Inc. began to turn things around.
Meanwhile, a deal between Nvidia and Intel allowing the companies to use each other’s capabilities went awry, forcing Nvidia to exit one of its largest markets. The two settled in 2011, with Intel agreeing to pay Nvidia $1.5 billion.
The following year, Nvidia unveiled graphics chips for data center servers. They could contribute to sophisticated computing work such as oil and gas exploration and weather forecasting, giving Nvidia a foothold in what would become a lucrative market. However, these chips didn’t immediately fly off the shelves. It would take nearly nine years for Nvidia stock to surpass its 2007 high.
Crypto and Covid
Nvidia shares took off again in 2015. During that time, the company’s chips became the foundation for emerging technologies, from advanced graphical interfaces to autonomous vehicles to a new wave of AI products.
That’s when Shana Sissel, managing director of Banrion Capital Management, first really took notice of the company. She described a 2017 conference where Nvidia sounded more like a competition winner than an investment idea.
“All the speakers talked about Nvidia as the most important company,” Sissel said. “At that point, it was really on my radar screen.”
Even after demand from cryptocurrency miners dried up, data center sales continued to grow. The Covid-19 pandemic has boosted this activity as businesses have had to purchase additional computing power to support remote working. Nvidia’s data center revenue grew by a multiple of eight between fiscal 2017 and fiscal 2021.
AI Sales Explode
Nvidia shares collapsed in 2022, along with the rest of the tech sector, which was reeling from rising interest rates and falling demand after the Covid-era boom.
OpenAI’s release of ChatGPT in late 2022 caused an instant stir, but it took time for investors to understand how Nvidia could benefit. Eventually, interest in ChatGPT and other generative AI products exploded, sparking a frenzied surge in orders for Nvidia chips.
When the company reported its first-quarter 2023 results, the magnitude of its business surge shocked almost everyone on Wall Street. Nvidia gave a quarterly sales forecast more than 50% higher than the average forecast.
Nvidia’s data center sales eclipsed its gaming revenue for the first time in fiscal 2023. For Nvidia’s current fiscal year, analysts expect those sales to exceed $100 billion. dollars.
“They have a very defensible position in the industry,” said Williams, a strategist at Wayve Capital Management. “They won’t represent 95% of the market forever, obviously, but it would be almost impossible for anyone to replace them.”
–With help from Ian King.
(Adds this year’s market cap increase in fourth paragraph. A previous version of the story corrected the spelling of a name in the first paragraph.)
Most read from Bloomberg Businessweek
©2024 Bloomberg LP
