Nvidia Corporation has overtaken Microsoft to become the world’s most valuable company, highlighting a significant shift in the technology sector driven by the demand for artificial intelligence (AI).
Nvidia’s shares rose 3.5% to $135.58, pushing its market capitalization to $3.335 trillion. This milestone was reached just days after Nvidia surpassed Apple. In comparison, Microsoft’s market value dropped to $3.317 trillion following a 0.45% decline in its shares, while Apple’s valuation decreased to $3.286 trillion after a 1% drop.
The AI Revolution
The rise of Nvidia underscores the increasing importance of AI technology in the modern economy. Nvidia’s high-end processors are central to advancements in AI, from data centers to autonomous vehicles. This surge in AI interest has driven both the S&P 500 and Nasdaq to record highs.
However, the market remains cautious. Steve Sosnick, chief market strategist at Interactive Brokers, noted, “It’s Nvidia’s market; we’re all just trading in it.” Nvidia’s average daily trading volume recently reached $50 billion, significantly higher than the $10 billion averages of Apple, Microsoft, and Tesla, accounting for about 16% of all S&P 500 company trading.
Growth and Demand
Nvidia’s stock has nearly tripled this year, compared to a 19% rise in Microsoft’s shares. The demand for Nvidia’s advanced processors has outpaced supply, as tech giants like Microsoft, Meta Platforms, and Alphabet compete to enhance their AI capabilities.
Oliver Pursche, senior vice president at Wealthspire Advisors, advised caution, saying, “Nvidia has been getting a lot of positive attention and has been doing a lot of things very correctly, but a small misstep is likely to cause a major correction in the stock.”
Record Highs and Future Outlook
Nvidia’s recent gains pushed its stock to a record high, adding over $110 billion to its market capitalization—equivalent to the entire value of Lockheed Martin. Nvidia’s market value jumped from $1 trillion to $2 trillion in nine months and then to $3 trillion in just over three months.
Since its forecast a year ago, Nvidia has consistently exceeded Wall Street’s expectations for revenue and profit. The demand for its graphics processors continues to outstrip supply as companies integrate AI applications. Nvidia executives have indicated that demand for their Blackwell AI chips could exceed supply well into the next year.
Stock Valuation
Despite Nvidia’s significant stock gains, analysts’ expectations for future earnings have increased even more sharply, leading to a lower earnings valuation. Nvidia recently traded at 44 times expected earnings, down from over 84 a year ago, according to LSEG data.
Conclusion
Nvidia’s recent 10-for-one stock split has increased its appeal among individual investors. As Nvidia continues to lead in AI technology, its position as the world’s most valuable company underscores the transformative impact of AI on the global economy and the dynamic nature of the tech industry.
Photo source: Google
By: Montel Kamau
Serrari Financial Analyst
19th June, 2024
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