Nvidia becomes worlds' most valuable company due to AI boom

Nvidia became the most valuable company in the world (nvidia.com)

Nvidia has become the world's most valuable company following a remarkable surge in its stock, underscoring the significant role investors expect artificial intelligence to play in the global economy in the coming years, according to Reuters.

On June 18, Nvidia's shares rose by 3.5%, bringing its market value to approximately $3.34 trillion. This move lifted the semiconductor industry leader above Microsoft and Apple, which have recently been competing for the top spots.

The surge in Nvidia's market value was driven by demand for its chips, which are considered the gold standard in artificial intelligence. The company's shares have risen more than 170% this year and have climbed roughly 1100% from their low in October 2022.

The growing investor enthusiasm for artificial intelligence has accelerated Nvidia's rally. It took Nvidia only 96 days to grow from $2 trillion to $3 trillion in market value.

According to Bespoke Investment Group, it took Microsoft, one of the two other companies to reach this rare milestone, 945 days to climb from $2 trillion to $3 trillion, while Apple took 1044 days to make the leap.

According to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, only 11 American companies have reached the top spot in market value since 1925.

The fortunes of past leaders have varied over the decades. Microsoft reached the top spot in the late 1990s but then struggled in the early 2000s due to the dot-com bubble, only to surge again in the latter half of the past decade.

Exxon Mobil became the world's most valuable company in the 2000s, but its shares fell after oil prices declined.

For some, Cisco serves as a cautionary tale. Its shares peaked at more than $80 in March 2000, during the height of the dot-com boom, when investors often assigned staggering valuations to internet-related companies.

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Nvidia's profits

Currently, Nvidia's profits support its stock price. In the latest quarter, revenue more than tripled to $26 billion, and net income soared sevenfold to $14.9 billion.

According to LSEG, revenue in the current fiscal year is expected to roughly double to $120 billion, and then grow by another 33% in the 2026 fiscal year to $160 billion.

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Nvidia's impressive financial results and forecasts have led to a decline in some valuation metrics for its shares, despite the price increase.

For example, according to LSEG Datastream, Nvidia's price-to-earnings ratio is 43. This is higher than the 25 level it was at the beginning of the year. By comparison, the S&P 500 index trades at a multiple of 21.

Although Nvidia has shown outstanding performance, it is not the only company benefiting from the enthusiasm over the potential profits from artificial intelligence. Shares of other tech companies, including Super Micro Computer and Arm Holdings, have also surged this year.

Notably, Microsoft surpassed Apple in market capitalization at the beginning of 2024 due to its investments in OpenAI, which initiated the development of generative AI by launching the ChatGPT chatbot.