Nvidia stock gained as much as 2.8% on Wednesday (9 July), making it the first company in history to pass $4 trillion in market capitalisation (market cap).
Despite enduring a torrent of headwinds this year, Nvidia’s (NASDAQ:NVDA) share price has continued its seemingly inexorable rise. It has been one of the most popular stocks with investors ever since it became closely associated with the AI boom, and with Nvidia stock continuing to outperform investors are being rewarded for their faith in the chipmaking giant.
Since the start of the year, Nvidia shares have gained 21.1%. Over the past 12 months, the stock is up 23.8%.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
“This is a historical moment for Nvidia, the tech space flexing its muscles,” said Dan Ives, head of global technology research at Wedbush Securities. He added that Nvidia hitting the $4 trillion milestone “speaks to the AI Revolution hitting its next stage of growth led by the one chip fueling AI: Nvidia.”
Nvidia’s meteoric ascendancy took off with the launch of ChatGPT in late 2022. Since then Nvidia shares have increased in value by nearly ten times, propelling it from a sizeable but relatively little-known stock to the most valuable company in the world.
“Once known for powering video games, Nvidia has transformed into a foundational player in AI infrastructure,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.
What AI means for Nvidia stock
Nvidia has had a near monopoly on the advanced computer chips that build the data centres where AI models, like ChatGPT, are developed and trained.
There has been a wave of investment into these centres ever since ChatGPT sprung to public attention. The rest of the Magnificent Seven in particular are continually ramping up their capital expenditure (capex) projections as they bid to outcompete one another for dominance of AI.
Meta (NASDAQ:META) raised its capex projection for 2025 to as high as $72 billion in its latest earnings release. Microsoft (NASDAQ:MSFT), the world’s second-most valuable company, looks set to spend $80 billion. Wedbush estimates that $2 trillion will be invested into AI initiatives over the next three years.
Between its 2023 fiscal year (which ended just after ChatGPT’s launch, in January 2023) and its 2025 fiscal year (which ended in January 2025), Nvidia’s adjusted annual net income soared from $8.4 billion to $74.3 billion.
Its chips are “the only game in town… the new gold and oil,” according to Ives.
Can Nvidia keep growing?
Nvidia’s share price gains are predicated on its continual earnings gains, which in turn relies on its near monopoly on cutting-edge AI chips.
So there are potential threats to its growth. A significant competitor in the AI chip market could dent Nvidia’s pricing power, forcing it to cut its margins in order to maintain its market share.
To some extent, that is inevitable. Even Ives, one of the world’s most outspoken Nvidia bulls, concedes that rival Advanced Micro Devices (NASDAQ:AMD) is “joining the party soon”.
“Growth is expected to slow, and it’s likely to lose some market share as competition and custom solutions ramp up,” said Britzman. He also highlighted, though, that “while it might seem strange for a company that’s just passed the $4 trillion mark, Nvidia still looks attractive.”
Nvidia shares trade at around 32 times earnings, which is fairly modest for a big tech stock. Revenue is expected to grow by around 50% this year, indicating that while its growth might be slowing, there is still room for further expansion ahead.
A slowdown in AI spend would be a concern for Nvidia, but at the time of writing, there doesn’t seem to be any indication that could happen soon.
-
How retail investors can gain exposure to Lloyd’s of LondonIt’s hard for retail investors to get in on the action at Lloyd’s of London. Here are some of the ways to gain exposure
-
The flaw in Terry Smith’s strategy at FundsmithOpinion Fundsmith has invested in some excellent companies, but it has struggled to decide when to sell, says Max King
-
Buy the ammo-makers: how to find value in the AI warsBig Tech is in a battle for supremacy over artificial intelligence. It’s hard to gauge who will win. Smart investors will back those firms that will profit, whatever the outcome
-
Sachin Dev Duggal's Builder.ai – the first big bust of the AI boomSachin Dev Duggal's Builder.ai start-up claimed it could use artificial intelligence to build apps. Its revenues turned out to be equally artificial
-
Alex Karp: can Batman save America?The US governing elite needs to take on the bad guys, says Alex Karp, who sees himself as the caped crusader to lead the battle
-
Should you invest in Microsoft?Microsoft is set to become the second company in the world to reach a $4 trillion valuation. Is now a good time to invest in Microsoft?
-
Amazon stock falls as AWS results underwhelmApple stock rose after earnings on a return to growth in China; Amazon's share price fell despite an earnings beat
-
Mira Murati: a trailblazer in AI goes it aloneMira Murati fled OpenAI to set up her start-up, Thinking Machines Lab. The firm just raised a record $2bn in a seed funding round and has grand ambitions
-
China takes the lead in the global AI tech race – can the US charge ahead?The idea that China could get ahead of the US in terms of technological prowess once seemed fanciful. That’s no longer the case.
-
Tesla shares fall after-hours, while Alphabet's gain on earnings beatAI positivity drove Alphabet's shares to new heights, but Musk's "rough quarters" warning saw Tesla's share price slump
