Nvidia, the semiconductor giant, is on the brink of surpassing Apple to become the world’s second-most valuable company. This potential leap is driven by Nvidia’s dominant role in the burgeoning field of artificial intelligence (AI), which has dramatically boosted its market value over the past year.
Nvidia’s high-end chips are the backbone of virtually all AI applications, including OpenAI’s ChatGPT. This reliance on Nvidia’s technology has nearly tripled its stock value to an impressive $2.68 trillion. In comparison, Apple, which had held the top spot on Wall Street for years, has seen its valuation dip to $2.92 trillion amid waning demand for its iPhones and fierce competition in China. Earlier this year, Apple lost its number one position to Microsoft.
Brian Mulberry, a client portfolio manager at Zacks Investment Management, commented on the shifting dynamics: “It is certainly notable because Apple has been so dominant for so long, especially on the growth and innovation front. Recently though, Apple’s innovation curve seems to have flattened, showing slower future growth.”
In contrast, Nvidia has adeptly capitalized on successive waves of growth. “Beginning with gaming demand, then crypto, and now AI, they have been able to perfectly match innovation with demand and that equals explosive growth,” Mulberry added.
Nvidia’s significant presence in the S&P 500 and Nasdaq indices has been a major factor in driving U.S. stocks to record highs. The company has accounted for over a third of the S&P 500’s gains this year. Additionally, Nvidia set a record by becoming the fastest company to grow from a $1 trillion to a $2 trillion valuation in 2024, outpacing giants like Amazon, Google-parent Alphabet, and Saudi Aramco.
Since its remarkable forecast about a year ago, Nvidia has consistently exceeded Wall Street’s high expectations for revenue and profit. The demand for its graphic processors has far outstripped supply as major tech companies rush to integrate AI capabilities. This surge in demand has led to sharp increases in analysts’ earnings estimates. Despite the rapid rise in its share price, Nvidia’s forward earnings valuation has actually fallen, trading at 37 times forward earnings compared to 48 times a year ago, according to LSEG data.
Nvidia has also gained significant popularity in the derivatives market. The GraniteShares 2x Long NVDA Daily ETF, which tracks twice the daily percentage change in Nvidia, has become the largest single stock ETF. This fund achieved a milestone by clocking $1 billion in daily turnover for the first time ahead of Nvidia’s recent financial results. This week, its total net assets reached a record $2.82 billion, as reported by Lipper data.
Options traders are also bullish on Nvidia. Trading volumes for Nvidia, especially for call options, have surged following the recent rise in its stock price. Last Thursday marked the fifth consecutive session where more than a million Nvidia call options were traded, the longest streak in the stock’s history, according to a Reuters analysis of Trade Alert data.
As Nvidia continues to ride the AI wave, its ascent in market value reflects the profound impact of AI on the tech industry and underscores the company’s pivotal role in this transformative era.
