Short-lived $1 trillion chip company amid AI boom – BBC News

  • By Natalie Sherman and Zoe Kleinman
  • BBC news

image source, Getty Images

The elite club of US corporations worth more than $1 trillion got a new member on Tuesday, at least for a few hours.

Chipmaker Nvidia briefly joined the ranks, as its share price rose more than 5% before retreating.

Shares were already up more than 25% last week after the company predicted “increased demand” due to advances in artificial intelligence (AI).

Apple, Amazon, Alphabet and Microsoft are the other publicly traded US companies worth more than $1 trillion (800 billion).

Founded in 1993, Nvidia was originally known for manufacturing the type of computer chips that process graphics, especially for computer games.

The company’s affable co-founder, Jensen Huang, has been investing in additional features for Nvidia chips long before the AI ​​revolution – a long game that seems to have paid off.

Its hardware powers most AI applications today, with one report suggesting it has captured 95% of the market for machine learning.

ChatGPT, the chatbot that ignited the AI ​​fervor with its launch last year, was trained using 10,000 graphics processing units (GPUs) from Nvidia bundled together in a supercomputer belonging to Microsoft.

Over the past 12 months, Nvidia’s share price has more than doubled as investors bet the company will profit from AI that ushers in the next wave of technological advancements.

The California-based company closed trading in New York on Tuesday for more than $990 billion worth of shares, after shares closed at about $401 apiece, or up nearly 3%.

“We see Nvidia at the heart and lungs of the AI ​​revolution,” Wedbush Securities analyst Dan Ives wrote last week, after the firm told investors it expects to make $11 billion in sales in the three months to August – almost 50% more than expected by analysts.

However, delivering on the promise of its high rating may prove difficult.

While Nvidia has exploded during the pandemic, its overall revenue growth was flat last year, while profits were cut in half.

There are questions about whether Nvidia can keep up with demand, especially as rivals AMD and Intel race to develop their own offerings and start-ups emerge.

The company also faces ethical questions, such as whether it should review the AI ​​products it makes chips for, amid swirling concerns about AI’s impact on society.

At current prices, Nvidia boasts a market value over eight times that of Intel. This is despite Intel reporting more than $63 billion in revenue last year, compared to $27 billion for Nvidia.

Geir Lode, head of global equities at Federated Hermes, said the magnitude of the recent jump in Nvidia’s stock price came as “a surprising surprise even to techno-optimists.”

“AI is the next supercharged growth area and we expect this to be just the beginning,” said Lode. “We know there will be growth, but valuations can be difficult to justify.”

Investor Cathie Wood, chief executive of Ark Invest, known as a technology mover, sold her stake in Nvidia in January, missing out on gains made since then.

She recently tweeted that the company’s stock was “valued ahead of the curve.” He said the markets were making a mistake in thinking the company was “the only AI game.”

In the past, investors have not hesitated to tighten up on former favourites.

Facebook owner Meta, who joined the $1 trillion club in 2021, was fired just months later as its shares lost about three-quarters of their value. Today it is valued at about $670 billion.

Communications giant Cisco was also seen as a likely member of the trillion-dollar club during the dotcom tech bubble of the late 1990s. But that bubble burst, and today the company is valued at about $200 billion.

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