Anyone who’s been keeping tabs on the stock market has no doubt heard of Nvidia. It's the gaming and AI-focused tech giant that’s seen volatile price growth over the last 18 months or so. Given its recent performance, we thought we’d take a closer look at why its price has surged so dramatically and whether this trajectory looks set to continue.
One caveat before we get started: we’re not recommending or endorsing Nvidia here – we’re merely giving you some intel so you can better understand its recent results. And remember, past performance isn’t an indicator of future performance. Any stock that has seen a meteoric rise could just as easily suffer catastrophic losses. With that said, let's dive in!
Nvidia might seem like a newcomer, but it was actually founded way back in 1993 by current CEO Jensen Huang. Located in Santa Clara, California, the company started by producing 3D graphics for gaming and multimedia before developing its most well-known product: the GPU.
GPU stands for ‘graphics processing unit’, and it’s simply a chip that helps speed up the processing and rendering of images and video on computers and smartphones. Nvidia created the GPU for gaming graphics, but the tech has since evolved to help support high-performance computing tasks like AI, robotics and data processing.
It’s mostly this technology that has driven Nvidia’s growth. The company has gone from a share price of about US$15 at the beginning of 2023 to nearly US$130 just 18 months later (accounting for its June stock split). That’s a jump of over 750%.
But what other factors have contributed to its price growth? And could Nvidia continue its upward trajectory or does its impressive run have an expiry date?
Let’s try to find out.
Why has Nvidia’s share price exploded?
Nvidia’s GPU technology is the core of the company’s success, but there are several key ways it has grown over the years. Here are a few of them.
Success in the gaming sector
It may feel like a distant memory now, but the pandemic was when Nvidia’s price growth started to gain traction. Its shares rose from just over US$4 each in 2019 to around US$14 in 2020.
The reason it jumped was that more and more people were spending time at home, and many of those people were passing the time playing video games on their PCs. Nvidia’s GPU technology helps power the visual side of gaming, with the company’s graphics cards a popular choice for PC gamers. It allows games to run faster and with higher resolution.
Outside of this pandemic-induced boom, there’s been fairly strong growth in the wider gaming and esports industries – both of which require high-performance chips like Nvidia’s. It's involvement in industry-defining games like Baldur's Gate 3 has also burnished its recent credentials among gaming fans. The same goes for virtual and augmented reality, including the metaverse, many of which are run using Nvidia’s 3D design and simulation platform, Omniverse.
Demand for cryptocurrency
Nvidia’s second surge was largely thanks to rising interest in cryptocurrency . Crypto mining requires enormous computing power, and Nvidia’s GPUs are strong enough to meet its incredibly high processing demands. When cryptocurrency took off in 2017, demand for Nvidia’s GPUs skyrocketed, and its share price soared as a result. (Note that the price fell when the crypto market corrected in 2018.)
Interestingly, Nvidia has a bit of a complicated relationship with the crypto sector. The company’s CTO has spoken out against crypto and Nvidia even released software able to block the use of its graphic cards in Ethereum mining. The idea was to deter crypto miners and funnel GPU sales into other areas like gaming and AI. Which brings us to…
A pivotal role in the generative AI boom
This is where Nvidia’s growth has really expanded rapidly, especially in recent months. Nvidia is hugely intertwined with the AI industry, particularly generative AI – a branch of artificial intelligence that can create new content, such as text, images, video or music. ChatGPT, Gemini and Leonardo are a few examples of generative AI in action.
Generative AI needs massive volumes of data to train. While they were originally developed for gaming, it quickly became apparent that Nvidia’s chips were capable of using and processing this data. To capitalise on this, Nvidia enhanced the capabilities of its GPUs by investing in AI applications, namely through data centres. Data centres are vast computing infrastructure facilities powered by Nvidia’s GPUs. They can handle massive computing power, making them ideal for training large AI models and processing enormous amounts of data quickly and efficiently.
When generative AI exploded in 2023, it took the chip giant's share value along with it. Companies like Apple, Microsoft and OpenAI were spending big on generative AI, and they were using Nvidia’s chips and data centres to run it. ChatGPT, created by OpenAI, is probably the most well-known and widely used example. The original iteration of the platform used 10,000 Nvidia GPUs to run, and when it launched, it helped cement Nvidia’s role in the AI boom. Now, more and more large corporations and smaller tech startups are using Nvidia’s high-powered chips to run their AI and machine learning systems.
Here are some figures that give you an idea of how much generative AI has impacted Nvidia. In 2021, the company generated around $16 billion in revenue. It made $30 billion in revenue in the most recent fiscal quarter alone. Based on market capitalisation , it is (at the time of writing) the third-biggest US company after Apple and Microsoft.
Beyond generative AI, Nvidia has played a role in other branches of artificial intelligence. For instance, its DRIVE platform is involved in driverless car technology; its Isaac platform is used in AI robotics; and its hardware helps power AI companies in healthcare, finance and other industries.
Strategic acquisitions and partnerships
Over the past few years, Nvidia has acquired several other tech companies and start-ups, which has only boosted its value (and its share price). These include Mellanox, a networking and data centre company; 3dfx Interactive, a graphics hardware developer; and MediaQ, a mobile graphics chip company. This year has been one of its most active in terms of acquisitions, with the company already buying four separate entities.
The fact that Nvidia is used by some of the biggest companies in the world, like Amazon, Google, Microsoft, OpenAI, Meta and Tesla, has also helped to boost its valuation. These kinds of strategic partnerships have made it harder for competitors to enter the market and strengthen the perception of Nvidia as a market leader.
Software expansion
While Nvidia is mostly known for its hardware (i.e. its GPUs), the company has also expanded into software to help enhance its hardware’s capabilities.
Omniverse, DRIVE and Isaac are a few examples, but it also makes CUDA (Compute Unified Device Architecture) and Nvidia AI Enterprise. These software programs have allowed users to do high-performance computing, mostly in AI and machine learning.
The move into software has majorly impacted Nvidia’s share price. Software development has not only opened up a new revenue stream, but because it’s designed to be used in conjunction with Nvidia’s GPUs, it’s driven demand across the entire business. It’s also helped bolster Nvidia’s position as a leader in the AI space, which investors have viewed positively.
Favourable market conditions and investor sentiment
While Nvidia’s fundamentals have been a key driver in its success, other factors have pushed its share price higher.
AI and machine learning as a whole have been getting a stronger foothold in various industries as they increasingly become integrated into different applications. Given Nvidia sits right in the centre of this growth, it’s only natural that the company has been able to enjoy the same momentum.
Investors have also been increasingly focused on AI stocks and the sentiment towards them has been very positive over the past few years. Nvidia especially has been seen favourably by many Wall Street analysts and investors, and this optimism has contributed to its continued growth.
Is this growth likely to continue?
It’s almost impossible to say. As with any share, despite strong past performance, there’s never a guarantee of future performance, and Nvidia’s share price really could go either way.
Market analysts love to speculate on Nvidia’s potential, though, with arguments on either side.
Some say Nvidia’s growth is far from over. Generative AI may be a particular driver of this growth, given it’s expected to become a $1.3 trillion industry by 2032 according to Bloomberg Intelligence . This equates to a compounded annual growth rate of about 42%. Nvidia is currently the default option for high-performance GPUs in the field of AI, plus the company is already looking into other areas of growth including 3D simulations and sovereign AI.
Others argue Nvidia’s dominance isn’t guaranteed. While Nvidia is the biggest player in the high-performance GPU game (it currently has about 80% of the market), it’s now not the only option in the market. Other companies are starting to catch up – like AMD and Intel. Then there’s the possibility that the companies relying on Nvidia’s chips, such as Google, Amazon and Meta, may start developing chips of their own.
Others still suggest the generative AI boom could be slowing down, potentially decreasing demand for Nvidia’s technology. In fact, some analysts have suggested Nvidia’s most recent quarterly financial results didn't quite match up to investor expectations – indicating a possible deflation in the AI bubble.
The best thing to do is conduct your own research into both Nvidia itself and the wider tech/AI industry, especially its future growth prospects. Then, if you decide to buy Nvidia shares, you’re going in armed with as much information and context as possible. It’s also important to remember that Nvidia is a US stock, so currency fluctuations can impact returns.
Consider your risk tolerance , financial goals and investing horizon before making a decision. And don’t hesitate to chat to a licensed financial adviser if you need further support.
Happy investing!
