Author: Amir Bereket
What does Nvidia do?
Nvidia Corporation is a leading technology company primarily known for its graphics processing units (GPUs) used in gaming, professional visualization, data centers, and artificial intelligence (AI) applications.A Graphics Processing Unit (GPU) is a specialized electronic circuit designed to rapidly manipulate and alter memory to accelerate the creation of images in a frame buffer intended for output to a display device. Overall, Nvidia plays a major role in the tech industry
Recent Nvidia's soaring
In historical context, Nvidia was considered as on of the most profitable stocks. Similarly, since its IPO at 1998, it has grown significantly; If you invested 1000$ at Nvidia's IPO in 1998, you would have $2,784,065(277,708%) as of Feb. 20. In addition, a thousand dollars invested a decade ago , would worth $148,226(22,340%) as of Feb. 20.
In the beginning of 2023, the price of NVidias stock used to be just at 143.00, nevertheless, it soared to the almost 500.00. Thus, it gives 3.3x , or 225%, growth in 2023. It is illustrated at the graph bellow:
Finally, this rally up-to-date was enough to make Nvidia the third most valuable company (after Apple and Microsoft), being valued at 2.31 trillion dollars as of Mar. 27, which is more than enough to outperform Saudi Aramco (2.01trillion).
Reasons
1.Demand for AI
Recent Nvidia's stock rise is associated with the AI(artificial intelligence)boom, and ML(Machine learning).The primary purpose of GPU in the Machine Learning is to optimize process of learning and adapting, which big tech companies(Microsoft,Google , and etc) applies. For instance, OpenAl has 10,000 of those to speed up the learning of the AI.That is exactly why demand for the GPUs have increased recently.
According to Bloomberg Intelligence , the AI industry will grow at constant rate of 42% in the next 10 years, potentially reaching 1.3 trillion by 2032.
2.Revenue
As you can see, revenue of Nvidia has increased dramatically, from 6.1B to 22.1B. Tripled revenue was one of the reasons for the investors excitement, while making insane progress in the gross profit , from 3.8B to 16.8B, in one calendar year.
The stock price of the Nvidia has been increasing after each revenue announcement in 2023, as they were constantly beating the forecasts of analytics. Similarly , Nvidia has surprised with the EPS, also beating expectations of the analysts.
3.The metavers and gaming
Nvidia is the big player in the metaverse, as it provides with the chips to run it. In addition, Nvidia provides software tools for 3D modeling aimed at optimizing the streaming of extended reality (XR) content. As Metaverse gets more complex, the demand for the chips increases.
Simultaneously, the field of Esports increases year by year, as it gets more complex. That is why Nvidia offers such powerful graphic card as 4070.
Risks
Nvidia made rallied from 130$ in the January of 2023 , to 922$ at the moment(27th march), which is equivalent to 520% growth. Due to this, investors are concerned about it is high-price, potentially being overvalued.
In addition, TSMC specializes in producing a wide range of semiconductor products, including microprocessors, system-on-chips (SoCs), graphics chips, memory chips, and other integrated circuits. For the past 2 years China and USA were involved in geopolitical issues over Taiwan. If this conflict will revive, it is going to negatively effect Nvidia's stock as TSMC is main manufacture of Nvidia's microchips.
Although Nvidia owns almost 70% of the microchips, and graphic cards, market, Thera are some competitors over this market, such as Huawei and Samsung.