NVIDIA nears $1 trillion valuation: What factors led to this
What's the story
The AI boom has got companies worldwide trying to make their own mark with the new technology. Some companies have stood out with their AI efforts, including Microsoft and OpenAI.
There is, however, one firm that has been silently benefitting from this gold rush - NVIDIA. It is currently the sixth-most valuable company in the world.
Context
Why does this story matter?
The interest surrounding AI technologies has spiked over the past few months. Everybody wants a piece of the lucrative pie, and they won't stop at anything to achieve that.
Although many of us have heard about Microsoft, OpenAI, and Google's advancements in AI, we may be unaware of NVIDIA's essential contributions to this field.
Unsurprisingly, NVIDIA is making the best out of it.
Valuation
NVIDIA's shares rose 24% in a single day
Before we get into the details behind NVIDIA's AI success, let's take a look at the numbers.
The company announced its Q1 results this week. That was followed by a 24.37% increase in its share price.
This pushed the chipmaker's market capitalization to $939.29 billion. It is now only behind Apple, Microsoft, Saudi Aramco, Google, and Amazon in terms of market valuation.
GPU
NVIDIA is the biggest seller of GPUs
You might be wondering how a computer chip company is closing in on a $1 trillion valuation. To understand that, you have to know about graphic processing units or GPUs.
GPUs were originally designed to improve graphics rendering. NVIDIA, the biggest seller of GPUs, benefitted heavily from the video game market boom.
However, its current success is not related to video games.
GPU & AI
GPUs are well-suited for AI computing
Years ago, AI researchers found that the same chips behind graphics-heavy video games can also power AI algorithms. GPUs are highly efficient in dealing with the specific math involved in AI computing.
Training large language models like Google's PaLM 2 or OpenAI's GPT-4 requires a massive amount of data. GPUs can crunch this data with ease compared to CPUs from companies like Intel.
NVIDIA & AI
Demand for NVIDIA's GPUs has skyrocketed
Ever since it found out the role of GPUs in AI computing, NVIDIA has been steadily making investments in its AI-focused business. Those investments paid off when ChatGPT's success resulted in a massive boom in the AI space.
The demand for NVIDIA's advanced GPUs has skyrocketed. From start-ups to Big Tech, everybody wants a piece of NVIDIA's technology to inspire their AI dreams.
Quarterly
NVIDIA estimates Q2 revenue to be $11 billion
The increasing demand for GPUs was reflected in NVIDIA's quarterly results. The company estimates its second-quarter revenue to be $11 billion, much higher than the Wall Street forecast of $7 billion.
The numbers have surprised everyone. But considering the dependence of companies on NVIDIA's GPUs, the estimates make sense.
Unsurprisingly, NVIDIA's dominance in the space is expected to continue.
Example
AI companies continue to purchase thousands of NVIDIA GPUs
NVIDIA sells thousands of GPUs to AI companies. For instance, GPT-4 features 10,000 chips. Tesla and SpaceX CEO Elon Musk has reportedly purchased 10,000 GPUs to start a company rivaling OpenAI.
In terms of money, a set of eight of the most advanced GPUs costs around $300,000. Now, do you understand where NVIDIA's Q2 revenue prediction of $11 billion is coming from?