Charting Nvidia’s 30-Year Ride to Overnight AI Success
Industry giants often start as underdogs. The world’s biggest chipmaker spent decades honing its craft in a niche corner of the market.
(Bloomberg Opinion) -- Nvidia Corp. was once a scrappy underdog. Founded in a Silicon Valley diner, the designer of graphics chips faced death more than once before finally realizing its founders’ vision of standalone semiconductors used specifically for displaying images on a screen.
Having already surpassed storied titans Intel Corp. and Advanced Micro Devices Inc., the company’s market capitalization touched $1 trillion last week. Graphics didn’t get it there, though. A bet that its approach to number-crunching would be a perfect fit for the nascent artificial intelligence sector ensured that when startups and major tech companies finally caught the wave, Nvidia was there to sell them high-priced chips perfect for the job.
These five charts outline just how Nvidia made it to the top.
Chips used to render graphics propped up the company’s revenue for years as its other category, computing and networking, got a boost from areas like cryptocurrency mining.(1) Then the graphics segment dipped sharply while number-crunching took up the slack.
The company’s graphics chips are mainly used for gaming, alongside professional applications such as 3D design. But an increasing number of its chips are being installed in data centers to help companies like Microsoft Corp., Alphabet Inc., OpenAI, and Amazon.com Inc. build their AI capabilities and offer those services to clients.
Last year’s release of ChatGPT ignited a frenzy of interest in generative artificial intelligence — AI that creates content instead of just analyzing information. Nvidia’s leadership position caught the attention of investors, who returned to the stock after getting cold feet following a massive rally in 2021.
One way to assess a company’s technological prowess is to see how much pricing power it has with customers. That can be measured by looking at gross margin — the markup it makes atop the cost of building the product. Intel Corp.’s heyday was during the PC and laptop eras. Today Nvidia holds the crown, with the high profits on AI chips and computers driving it to record profitability.
The world’s top technology names don’t want to miss the AI boat, but to make their mark they need to spend billions of dollars on expensive and specialized servers. Nvidia is the primary choice, which means that massive capital expenditure budgets are likely to flow through to the chipmaker, even more so now that much of Silicon Valley has axed thousands of jobs and pledged to replace many roles with AI.
How long, and how high, Nvidia rises will depend a lot on how major corporations and mass consumers adopt and adapt to the AI boom. It will also need to remain ahead of rivals like Intel and AMD who are keen to steal more of the pie, while clients like Amazon.com Inc. are also branching out into semiconductor development. The once upstart graphics chipmaker may hold the crown today, but in the world of artificial intelligence, nothing is guaranteed.
More From Bloomberg Opinion:
- Moore’s Law Keeps Chip Leaders Ahead of the Pack: Tim Culpan
- AI’s Age of Mimicry Will Make Human Mimes Cry: Parmy Olson
- AI Is Helping Create the Chips That Design AI Chips: Tim Culpan
(1) Nvidia categorizes two "Reportable Segments," defined as "Compute & Networking," and "Graphics."
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News.
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