July 24, 2024
Nvidia AI Surge, World's Most Valuable Company
AI

Nvidia AI Surge: World’s Most Valuable Company

Nvidia (NVDA.O) has now ascended to the position of the world’s most valuable company following a remarkable rally in its shares, underscoring the significant role investors expect artificial intelligence (AI) to play in the global economy in the coming years.

Nvidia shares rose 3.5% on Tuesday, elevating its market value to approximately $3.34 trillion. This surge pushed the semiconductor giant past Microsoft (MSFT.O) and Apple (AAPL.O), which had been competing for the top spots in recent days.

Driving Factors Behind Nvidia’s Success

The surge in Nvidia’s market value has been driven by high demand for its chips, which are considered the gold standard in the AI industry. The company’s shares have surged more than 170% this year and have soared about 1,100% since their October 2022 low. Blockbuster earnings and growing investor enthusiasm for AI are supercharging Nvidia’s rally. This fervor has been reflected in Nvidia’s market value, which skyrocketed from $2 trillion to $3 trillion in just 96 days. In comparison, Microsoft took 945 days and Apple took 1,044 days to achieve the same leap, according to Bespoke Investment Group.

Previously, only 11 U.S. companies since 1925 have achieved the top spot in market value on a closing basis, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. The fortunes of past holders of the top position have varied over recent decades. Microsoft reached No. 1 in the late 1990s but then struggled during the early 2000s following the dot-com bubble, only to surge back in the latter half of the last decade. Exxon Mobil (XOM.N) became the world’s most valuable company in the 2000s but saw its shares retreat following a downturn in oil prices. Cisco (CSCO.O) serves as a cautionary tale, with its shares peaking at over $80 in March 2000 during the dotcom boom, when investors often assigned dizzying valuations to internet-related companies.

The Road Ahead for Nvidia

“NVDA’s run has been incredible, but it will need to keep growing from here and stave off competition if its stock is going to keep putting up stellar returns,” Bespoke noted in a recent analysis. For now, Nvidia’s earnings are supporting its stock price. Revenue more than tripled to $26 billion in the latest quarter, while net income soared seven-fold to $14.9 billion. Revenue for the current fiscal year is projected to nearly double to $120 billion, with an expected rise of another 33% in fiscal 2026, reaching $160 billion, according to LSEG data.

Nvidia’s impressive financial performance and forecasts have led to a moderation in its stock valuation despite the surge in share price. For instance, Nvidia’s forward price-to-earnings ratio last stood at 43, according to LSEG Datastream. This is higher than the 25 level it was at the start of the year but below the levels it reached for much of last year. By contrast, the S&P 500 trades at 21 times earnings.

While Nvidia has been the standout performer, it is not the only stock benefiting from enthusiasm about the profit potential for AI. Shares of other technology companies, including Super Micro Computer (SMCI.O) and Arm Holdings, have also seen significant increases this year.

Image by Jacek Abramowicz from Pixabay

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