How It Became “The World’s Most Important Stock”

On Wednesday, Nvidia reported record fourth-quarter revenue of $22 billion, up 265% from the same quarter a year earlier, and earnings that beat expectations. However, immediately following these results, shares fell 3% in late market trading.

It should be noted that the decline did not last long. And this is less a comment on Nvidia’s earnings and more on investors’ exceptionally high expectations for the artificial intelligence market. As of 5:15 p.m. ET, Nvidia shares were up 8% in after-hours trading and had risen as much as 10% at one point.

Shares of the chip maker rose 16.5% on Thursday Its market value is $277,000 million, which left it at the $2 trillion mark by total market capitalization. This is the largest increase in the market value of a stock in a single session in the history of the US stock market, surpassing the $200 billion that Meta had achieved just a few weeks earlier.

To measure the magnitude of such a feat, suffice it to say that Nvidia’s one-day profit exceeds the total market cap of giants like Bank of America (US$265 billion) or Coca-Cola (US$263 billion). Overall, only 26 of the S&P 500’s 500 companies have a market capitalization of more than $273 billion, including Nvidia.

The reaction to Nvidia’s earnings and forecasts had a worldwide impact. In Japan, the Nikkei index surpassed levels last seen in 1989. On Wall Street, the Nasdaq technology index rose the most, rising 2.96%, while the selective S&P 500 advanced 2.11% to 5,086 points, hitting a new high. historical record.

“The Most Important Activity on Planet Earth”

Nvidia’s strong results — and the company’s comments about continued demand for microprocessor chips — gave the market a collective sigh of relief. And everyone is watching the company that none other than Goldman Sachs has dubbed “the most important on planet Earth.”

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All this makes Nvidia Chairman Jensen Huang the kind of tech messiah everyone listens to. According to The Guardian, the real shift in the market came when Huang said in an earnings release that “accelerated computing and generative AI have reached a tipping point. Demand is surging across companies, industries and countries around the world”.

Additionally, as investors noted, the company’s data center segment exceeded expectations and posted 409% growth year-over-year, despite what company CFO Colette Cress said were “data center sales” to the U.S. government. decreased significantly in the fourth quarter due to licensing requirements. ,

The roller coaster that Nvidia’s shares have become after its release shows how high the expectations are for this company and AI. For example, Wall Street officially expected the outlook for the fiscal first quarter of 2025 to be $22 billion. Nvidia announced it expected $24 billion, which is a very high figure. But buy-side traders were informally expecting guidance of $23 billion (or more), which blunted the impact and initially took some breather from the stock’s rise.

Nvidia is taking advantage of the AI ​​revolution like no one else

Nvidia’s record profits and growth come from its custom-designed chips, which are used to train and power generative AI services run by companies like OpenAI, Google, Microsoft, and Amazon. However, Nvidia’s near-exclusive dominance and high demand have raised some concerns as AI companies have faced chip shortages.

This has prompted companies like Microsoft and Meta to look for alternatives like AMD Company. Last year, the two companies announced plans to team up with OpenAI to use AMD’s Instinct MI300X chip as an alternative to Nvidia’s popular H100. Other companies have also been boosted by the AI ​​boom: TSMC is a major maker of Nvidia’s silicon, while ARM’s chip architecture is used to power the CPUs of Nvidia’s so-called Grace Hopper superchips.

Nvidia has been a leading technology company for some time, but so far in 2024, it has been a monster. It is now the third-largest company in the US (fourth globally) and has accounted for a third of the Nasdaq 100’s profit this year.

What makes Nvidia chips so special?

Amid the immense popularity of tools like ChatGPT and Bard, the generic AI industry wants Nvidia chips more than ever. Generative AI systems, capable of composing essays or emails with human-sounding prose, require a lot of computing power.

But why are Nvidia microprocessors so favored by AI companies? Nvidia’s success is explained in a very educational way in this post from the company. This is due in part to the capabilities of its underlying technology; Partly, too, by virtue of being in the right place at the right time.

Nvidia, founded in 1993 by a Taiwanese-American electrical engineer named Jensen Huang, initially focused on computer graphics. The high-resolution graphics of PC games require special mathematical calculations, which are performed more efficiently with a parallel system. In such a system, multiple processors simultaneously execute small calculations derived from a larger, more complex problem.

The 21st century brought machine learning: a subset of AI that involves training algorithms to learn from data and extrapolate from it. Coincidentally, machine learning is also a type of computing that requires very fast, simultaneous calculations, making it well-suited for the type of parallel architectures offered by Nvidia chips. As the number and variety of AI applications grows, from smart devices to predictive appointment tools, demand for the company’s chips grows. Hence, record earnings generated by a tsunami of green stock market led by Nvidia.

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