According to Yahoo Finance, Nvidia became the first-ever chip maker to reach a $1 trillion market cap, albeit briefly. However, the company, best known as a video game graphics card producer, reached the milestone as PC sales tanked. Gartner reports worldwide PC shipments declined nearly a third in quarter one of 2023. And the Chinese personal computer powerhouse Lenovo says its profits tanked 75% year-on-year. So, how did Nvidia, a PC part manufacturer, report record profits as the personal computer market hit drastic lows?
Nvidia avoided PC market woes with its auspicious timing of new products.
As mentioned, traditionally, Nvidia focused its efforts on producing graphics processing units for video game-oriented computers. The Motley Fool reports about $9 billion of the company’s nearly $12 billion 2022 revenue came from gaming graphics cards. And, though Global Market Insights expects the GPU market to grow 25% by 2032, waning PC demand is hurting sales.
And, of course, the company capitalized on the AI boom and created a massive wave of hype. But it isn’t just the investment in artificial intelligence that drove Nvidia to the trillion-dollar club.
The company put its newest high-end graphics cards to good use beyond selling them to enthusiast gamers with spare cash. The company upgraded its cloud gaming services to use its RTX 4080 graphics cards for a massive performance boost. The cloud gaming market grew exponentially from 2021 to 2022 before Nvidia released its 40-series PC graphics cards.
Though they lag behind industry titan Xbox’s approximate 60% cloud gaming market share, Nvidia holds a respectable 20% or so. It has a similar claim to Sony’s PlayStation cloud services, which is a massive achievement in the gaming space. PC gaming only held 20% of the video game market in 2022, whereas console and mobile games accounted for nearly 80%.
However, Microsoft includes its cloud gaming services with a premium Xbox Game Pass Ultimate subscription. Nvidia charges $10 or $20 (depending on your subscription) for its cloud service, GeForce Now. As such, Nvidia dominated the field with a 58% cloud gaming market revenue share. And the GeForce Now subscriber base grew by about 10 million in the last year.
The company struck gold with its rollout of AI chips, but can it last?
Nvidia saw consistent growth in the cloud gaming space with GeForce Now. But their AI investment drove stocks up a whopping 172% in 2023, rising 30% in late May alone. The company’s stock briefly peaked at about $419 per share on May 29th as it rode the AI wave.
The company invested heavily in artificial intelligence in 2016 with its Tesla P100 GPU, costing over $2 billion in development. Their latest AI processor, the H100, is magnitudes more powerful than Nvidia’s original offering in the sector. In other words, the company positioned itself perfectly to reap the spoils of the massive hype surrounding artificial intelligence.
However, Markets Insider reports Nvidia could have found itself at the center of a bubble getting ready to burst. According to renowned NYU finance professor Aswath Damodaran, the company’s exponential growth isn’t sustainable. “I finally got it out of my portfolio because I couldn’t take the rise. You had $300 billion in a week,” said Damodaran. “You’re pushing the absolute limit of what sustainable value is.”
Additionally, Bank of America compared the recent AI revolution to the dot-com boom of the late 90s. BofA chief investment strategist Michael Hartnett said AI is in a “baby bubble,” which could pop with rate hikes.
