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The Rise of Nvidia: A Tale of Technological Brilliance and Investor Success

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As technological history unfolds, certain days stand out as pivotal moments. November 30, 2022, marked one such occasion with the launch of OpenAI’s ChatGPT, a generative artificial intelligence (AI) chatbot that has taken the world by storm. The meteoric rise of ChatGPT, boasting 100 million monthly active users within just two months of its release, signals the dawn of a new era—the age of AI.

Amid this revolutionary landscape, Nvidia(NASDAQ: NVDA) emerges as a shining star in the realm of generative AI. Recognized for its graphics processing units (GPUs) and chips perfectly suited for demanding applications like ChatGPT, Nvidia’s stock has soared to incredible heights, reflecting the company’s pivotal role in the AI boom.

Before delving into the impressive returns Nvidia has yielded, let’s dissect why this tech giant has emerged as a frontrunner in the AI revolution.

A phone with the ChatGPT logo in front of

Image source: Getty Images.

The Vanguard of AI: Nvidia’s Dominance Unveiled

In the year 1999, Nvidia introduced GPUs to the world and has reigned supreme in this domain ever since. Initially acclaimed for prowess in gaming, Nvidia’s GPUs have expanded into applications like cryptocurrency mining, autonomous driving, and now, artificial intelligence.

In contrast to central processing units (CPUs), GPUs perform technical computations at a swifter and more efficient pace, offering improved performance for AI training, inference, and accelerated computing. Jensen Huang, Nvidia’s CEO, foresees GPUs as the linchpin of future data-center infrastructure—an assertion upheld by Stanford’s Human-Centered AI group, citing a 7,000-fold increase in GPU performance since 2003.

Renowned for their cost efficiency and unrivaled performance metrics, Nvidia GPUs have been unrivaled in AI training and inference, underscoring the company’s near monopoly status in the industry with a staggering 98% share of the data-center GPU market.

Though competitors like Advanced Micro Devices and newcomers like the Mi300 from AMD and Intel’s Gaudi3 accelerator loom on the horizon, dethroning Nvidia from its AI GPU dominance appears a Herculean task. With a market capitalization surpassing $2 trillion, Nvidia’s ongoing ascent to all-time highs, more than a year post-ChatGPT’s launch, is a testament to its unwavering supremacy.

The Meteoric Surge: Nvidia’s Post-ChatGPT Triumph

On the day of ChatGPT’s launch, Nvidia’s stock witnessed an 8.2% surge, rounding off at $169.15. Subsequently, investors who seized the opportunity found their investments skyrocketing by a whopping 428% by March 12. An initial $10,000 stake in Nvidia on ChatGPT’s debut day would have blossomed into $52,800—a stark contrast to the S&P 500’s 26.2% gain and the Nasdaq Composite’s nearly 41% surge during the same timeframe.

NVDA Chart

NVDA data by YCharts.

As depicted in the chart above, Nvidia’s stock initially tapered towards the end of 2022, mirroring broader market trends, before roaring back to life as the AI frenzy gained momentum in early 2023. A remarkable surge ensued in May following bullish guidance that anticipated a tripling of revenue, propelling Nvidia to new heights. The stock’s continued ascendancy in 2024 reflects persistent underestimations of AI demand by Wall Street and Nvidia’s foray into novel markets like PC chips.

Fortunes in Flight: Nvidia’s Investment Prospects Unveiled

Despite the stock’s monumental surge post-ChatGPT, Nvidia’s valuation has actually dwindled over this period, evidenced by a reduced forward price-to-earnings (P/E) ratio. Profits have soared as the company capitalized on escalating AI demand, signaling a favorable risk-return profile for prospective investors.

NVDA PE Ratio (Forward) Chart

NVDA PE Ratio (Forward) data by YCharts

Amid the prevailing volatility in the AI sector, concerns of a speculative bubble surrounding Nvidia appear exaggerated. While competition looms on the horizon, Nvidia’s unassailable dominance in the AI GPU market, coupled with its commitment to relentless innovation, positions the company to sustain its leadership adeptly.

For those contemplating an investment in Nvidia, prudent evaluation is advised:

The Motley Fool Stock Advisor team has meticulously tailored a list of the 10 best stocks for investors poised for substantial returns in the foreseeable future. While Nvidia stands excluded, these handpicked stocks hold the promise of monumental growth in the upcoming years.

Stock Advisor extends a comprehensive roadmap to financial success, offering portfolio-building strategies, regular insights from analysts, and bi-monthly stock recommendations. Notably, the Stock Advisor service has surpassed the S&P 500 return by threefold since 2002*.

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*Stock Advisor returns as of March 18, 2024

Jeremy Bowman holds no positions in the aforementioned stocks. The Motley Fool has disclosed positions in and recommends Advanced Micro Devices, Apple, Microsoft, and Nvidia. Further recommendations include long January 2023 $57.50 calls on Intel and various other financial options. The Motley Fool upholds a stringent disclosure policy.

The perspectives shared herein reflect the author’s viewpoints and do not necessarily align with those of Nasdaq, Inc.

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