FX168 Financial News Agency (North America) According to reports, it was in 1999. Steve Jobs had just returned to Apple. Intel was the dominant force in the semiconductor industry. An obscure chipmaker, Nvidia, made its debut on the NASDAQ stock exchange.
Nvidia only took less than three years to enter the S&P 500 index.
However, few would bet that it would become the best performing stock in the past 25 years, with a total return rate including reinvested dividends of 5,910.78% since its initial public offering (IPO). This is an incomprehensible number that proves financial frenzy surrounding artificial intelligence is brewing, and how investors view Nvidia, the company that produces cutting-edge chips powering that technology, as the biggest winner of the boom times. On Tuesday, Nvidia's stock reached an all-time high, with a market cap of $3.34 trillion, surpassing Microsoft as the world's most valuable company. This year, Nvidia's market cap has increased by more than $2 trillion.
The company's rise is by no means certain, and its leadership position in the S&P 500 is also not certain. Nvidia's long-term investors have had to endure the phenomenon of the stock falling by 50% or more over the last three years. Maintaining the current momentum requires customers to continue to spend billions of dollars on AI equipment every quarter, and the investment return of these devices is currently relatively small.
However, what ultimately paved the way for Nvidia's ascent was the company's big bet on graphics chips and co-founder and CEO Jensen Huang's vision that the industry would turn toward what he called 'accelerated computing,' with his chips essentially trumping the competition in this area.
"I think you have to give management a lot of credit," said Brian Mulberry, a client portfolio manager at Zacks Investment Management. "They perfectly captured every innovation wave in the hardware space."
Below is Nvidia's performance since its IPO.
In the early years, Nvidia got off to a good start.
From its listing to its inclusion in the S&P 500 index, the company's stock price rose by over 1,600%, with a market cap of around $8 billion. At the time, many other tech stocks were plummeting as a result of the impact of the dot-com bubble, which reached its peak in March 2000.
(Image source: Bloomberg)
The key to its early success was applying its technology to video game consoles like the Microsoft Xbox and Sony PlayStation. Nvidia's GeForce graphics processing units (GPUs) became the product of choice for gamers, as they always provide the most realistic experience.
"Jensen has always been a great communicator, a great storyteller, and it was obvious that the GPU was becoming more and more important," said Rhys Williams, chief strategist at Wayve Capital Management, who was also one of the buyers of the IPO. "Every generation of hardware provided better performance, better visuals, and then PC gaming really took off."
The next six years weren't easy for Nvidia. In 2008, the financial crisis weakened demand, and long-struggling competitor AMD began to reverse the situation, causing the company's stock price to plummet.
At the same time, the agreement between Nvidia and Intel allowing the two companies to use each other's functionality also had problems, forcing Nvidia to withdraw from one of its largest markets. The two companies reached a settlement in 2011, with Intel agreeing to pay Nvidia $1.5 billion.
The following year, Nvidia launched graphics chips for data center servers. They can help with complex calculations like oil and gas exploration and weather forecasting, allowing Nvidia to gain a foothold in this lucrative market. However, these chips did not sell immediately. It took almost nine years for Nvidia's stock price to exceed its high point in 2007.
(Image source: Bloomberg)
In 2015, Nvidia's stock price skyrocketed again. During this time, the company's chips became the foundation of emerging technologies, from advanced graphical interfaces to self-driving cars, to the latest wave of AI products.
It was at this time that Shana Sissel, CEO of Banrion Capital Management, first really paid attention to the company. She described a meeting in 2017 where Nvidia seemed more like a beauty pageant winner than an investment concept.
The rise of cryptos wasn't the only factor in Nvidia's success: the company's bet on graphics chips and CEO Jensen Huang's focus on 'accelerated computing,' with his chips trumping rivals in this area, were also big factors.
Investors will be watching to see if Nvidia can sustain its steep growth trajectory.
(Image source: Bloomberg)
Some have argued the company's chips are too expensive, which could dampen demand.
But the company's long-term outlook is strong, as its cutting-edge chips power a wide range of emerging technologies, including self-driving cars, VR, and AI. And its CEO, Jensen Huang, has said the company is positioning itself to play a major role in enabling the so-called Internet of Things. "We're very, very focused on these emerging technologies, and I think that's what's driving the growth," said Huang.
"Every speaker says Nvidia is the most important company," Sissel said. "At that time, it really caught my attention."
Even after the demand for crypto miners has dried up, sales of data centers continue to grow. The COVID-19 pandemic has driven the growth of this business, as companies need to purchase additional computing power to support remote work. From the fiscal year 2017 to the fiscal year 2021, Nvidia's data center revenue has grown eightfold.
Explosive growth in AI sales.
(Image source: Bloomberg)
In 2022, Nvidia's stock price plummeted along with other technology stocks, which were in trouble due to rising interest rates and declining demand after the prosperity in the era of COVID-19.
OpenAI released ChatGPT at the end of 2022, causing an immediate sensation, but it took investors some time to realize that Nvidia could benefit from it. Eventually, people's interest in ChatGPT and other generative AI products surged, triggering a crazy increase in Nvidia's chip orders.
When the company announced its first quarter earnings for 2023, the scale of its business growth almost shocked everyone on Wall Street. Nvidia's quarterly sales forecast was more than 50% higher than the average forecast.
In the fiscal year 2023, Nvidia's data center sales exceeded its gaming revenue for the first time. Analysts predict that data center sales will exceed $100 billion in Nvidia's current fiscal year.
"They have a very solid position in the industry," said Williams, a strategist at Wayve Capital Management. "Obviously, they cannot occupy 95% of the market share forever, but it is almost impossible for anyone to replace them."