On June 18th (Tuesday) Eastern Time, Nvidia rose 3.6% in revenue, with a market value of $3.34 trillion, surpassing Microsoft for the first time to ascend to the "world's most valuable company.".
With technology companies such as OpenAI, Microsoft, and Alphabet competing to purchase GPUs, Nvidia's performance has also rapidly expanded. Currently, Nvidia's market share in the AI chip market for data centers has reached nearly 80%.
However, becoming the "world's largest company by market value" does not mean that Nvidia lacks foresight. The rapid growth in the early stage has caused more and more people to worry. Can this growth continue? If there are signs of a slowdown in global AI spending, optimism in this field may dissipate.
Moreover, on the day when NVIDIA's market value peaked, the mainstream financial media in the United States compared it with Cisco, the leading company in the Internet foam period at the beginning of this century, saying that there were some similarities between the two, warning investors to beware of the foam behind the boom.
Finding the next growth point is crucial for Nvidia. The Daily Economic News reporter noticed that earlier this year, Huang Renxun had already targeted the AI "national team" and promoted the "Sovereign AI" strategy. During this year's first quarter financial report conference call, Nvidia executives mentioned that the "sovereign AI" business is expected to generate nearly $10 billion in revenue in 2024.
$3.34 trillion! Nvidia's market value tops the world's top
On June 18th Eastern Time, Nvidia's market value reached $3.34 trillion, surpassing Microsoft (with a market value of $3.32 trillion) to ascend to the throne of the world's most valuable company for the first time. This is the first time a company outside of Microsoft and Apple has received this title since Amazon briefly topped the charts in February 2019.
Companies ranked in the top ten by market capitalization
Under the AI wave sparked by ChatGPT, Nvidia's ultra-high computing power GPUs have always been in short supply. Nvidia executives recently stated that the market demand for the latest generation of AI chip Blackwell may be equally strong and will "continue until next year.".
With the continuous increase in chip demand, Nvidia's performance has also shown explosive growth. Data shows that as of the first quarter of this year, Nvidia's net profit has exceeded analyst expectations for six consecutive quarters, and revenue has exceeded expectations for seven consecutive quarters.
Analysts also have expectations for Nvidia's future. Like NVIDIA CEO Huang Renxun, they also believe that AI is the foundation of a new round of industrial revolution, and NVIDIA will play a central role in this revolution.
Daniel Ives, Managing Director and Senior Stock Analyst of Wedbush Securities, stated in an email to a reporter from the Daily Economic News that he believes Nvidia, Apple, and Microsoft will become the focus of the $4 trillion market value competition in the technology industry in the coming year. With the advancement of the Fourth Industrial Revolution, the demand for high-performance chips from enterprises and consumers is increasing day by day. Essentially, Nvidia's GPU chips are the new gold or oil in the field of technology.
According to data from the London Stock Exchange Group, Nvidia has become the company with the largest trading volume on Wall Street, with a daily trading volume of $50 billion, while Apple, Microsoft, and Tesla have a daily trading volume of approximately $10 billion. Currently, Nvidia accounts for approximately 16% of all transactions of companies in the S&P 500 index.
The optimistic sentiment in the secondary market has also led to a significant increase in Nvidia's valuation in a short period of time. In February of this year, Nvidia's market value increased from $1 trillion to $2 trillion within 9 months, while from $2 trillion to $3 trillion, Nvidia only took more than 3 months.
Is it Cisco 24 years ago? Nvidia faces two major practical challenges
However, Nvidia's significant increase in the short term has also led more and more market observers to question the rationality and sustainability of its valuation.
On the day when Nvidia's market value peaked, the Wall Street Journal published an article saying that Nvidia was leading a technological boom, which recalled the Internet boom at the beginning of this century.
You should know that the last time a large computing infrastructure provider became the world's most valuable company was in March 2000. At the peak of the Internet boom, Cisco, a network equipment company, also surpassed Microsoft to reach the top.
It is reported that John Chambers, who served as the CEO of Cisco during the Internet boom, believed that Nvidia and Cisco did have some similarities, but the development of AI was different from the revolution led by the Internet and cloud computing. "As far as the scale of market opportunities is concerned, its impact is equivalent to the sum of the Internet and cloud computing. The speed of change is different, the market size is different, and the stage at which the company reaches the highest market value is also different." Chambers said.
In fact, this is not the first time that mainstream media has compared Nvidia with Cisco during the Internet foam at the beginning of this century. In February of this year, the Financial Times drew an analogy between Nvidia and Cisco, warning investors and institutions to remember history.
At that time, hundreds of millions of investors all over the world expected the Internet to change the world, and the demand for network hardware such as servers and related routers also increased sharply. Telecom companies and hardware suppliers became the biggest winners in the capital market. The stock prices of telecom equipment stocks such as Cisco peaked before the Internet foam burst in 2000. Among them, Cisco's stock price surged more than 30 times in just a few years.
However, the collapse of the telecommunications industry caused by the Internet speculative boom came earlier than expected - it only took four years for the entire industry to go from prosperity to depression, and it was much faster than the Internet to change human life. By 2002, two years after the Internet foam burst, the excess supply had led to the bankruptcy of more than 20 telecom groups, and the shares of other companies that did not go bankrupt also suffered a sharp sell-off.
For Nvidia, the real challenge is that if technology giants cannot achieve tangible performance growth through big models in the next 1-2 years, Nvidia's performance growth will also lack a solid foundation.
The Wall Street Journal cited estimates from Sequoia Capital in March this year that since ChatGPT ignited the AI boom, Nvidia's chips have received approximately $50 billion in investment, but the sales of generative AI startups are only $3 billion.
According to the Financial Times, another major challenge for Nvidia is Moore's Law, as high-end computing chips will soon be commercialized.
Taking the old 40 nanometer chips used in household appliances as an example, these chips are no longer in short supply, but when they were first launched in 2008, they were all scarce cutting-edge products. With the depreciation of capital equipment, the prices of such chips have experienced a significant decline in a short period of time.
The research and manufacturing speed of chips is accelerating every year, and software efficiency is also improving every year. The chip was upgraded from a 7-nanometer process to the 5-nanometer process used in Nvidia's latest chips in just two years. This rapid technological advancement means that in the future, industry companies may spend much less on chips than they expected today.
Is Sovereign AI a New Growth Driver? Expected revenue this year will approach $10 billion
How should Nvidia maintain high growth and where is the next growth point?
Currently, Nvidia is promoting its "sovereign AI" strategy in addition to GPU sales. At the 2024 World Government Summit in February this year, Nvidia CEO Huang Renxun bluntly stated that every country/region should establish its own "sovereign AI".
NVIDIA official website
The Daily Economic News reporter noted that this concept was not pioneered by Nvidia - in 2020, the European Parliament passed a proposal on how to better regulate AI, emphasizing ethical principles and legal obligations to be followed in the development, deployment, and use of AI. In addition, the EU is also concerned about data sovereignty issues and implemented the EU General Data Protection Regulation in 2018, which regulates all enterprises operating within the EU. This is roughly the embryonic form of the concept of "sovereign AI".
On its official website, Nvidia has a clear explanation of "sovereign AI": "sovereign AI" encompasses both physical and data infrastructure. The latter includes autonomous foundational models, such as large-scale language models, developed by local teams and trained on local datasets to promote inclusiveness in specific dialects, cultures, and practices.
Currently, countries in Asia, the Middle East, Europe, and the Americas have invested billions of dollars in their new AI computing facilities, opening up channels for Nvidia and other technology companies to promote rapid sales growth. Governments around the world are increasing their budgets and implementing other incentive measures to encourage domestic and multinational corporations to build new data centers and retrofit old data centers with specialized computer chips, most of which come from Nvidia.
The press release released on Nvidia's official website also shows that Nvidia's "sovereign AI" clients include governments in countries and regions such as Singapore, Japan, France, Italy, and India.
According to media reports, Singapore's National Supercomputing Center is upgrading with Nvidia's latest AI chips, and state-owned Singapore Telecom is partnering with Nvidia to expand its data center presence in Southeast Asia. Canada also pledged to invest $1.5 billion last month as part of its sovereign computing strategy to support its startups and researchers. After Huang Renxun's visit to Japan, Japan stated that it will invest approximately $740 million this year to develop domestic AI computing capabilities.
Nvidia executives revealed in their Q1 2024 earnings conference call that the "Sovereign AI" business is expected to generate nearly $10 billion in revenue in 2024, although the business has not yet achieved revenue in 2023.
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