This year, Nvidia (NASDAQ: NVDA), the GPU giant, has captured the attention of investors due to its remarkable rally, making its stock more costly. The company’s shares have seen a significant upturn this year, skyrocketing by approximately 180% since January 1st. This is a dramatic contrast to the 50% plunge in the company’s stock amidst the economic turbulence of 2022. Nvidia’s business model evolution from a primarily PC-gaming focus to artificial intelligence (AI) development has fortified its position and reduced its dependency on consumer chip sales. This also includes their ongoing successful performance in the data center sector.
Therefore, considering an investment in this technology behemoth before its stock price escalates further may be a sensible move. Nonetheless, understanding the pros and cons associated with the company before acquiring any shares is crucial. Nvidia’s potential in AI must compensate for its highly-valued stock.
Profitable collaborations in various technology sectors
Before this year, Nvidia was predominantly recognized for its high-performance consumer graphics processing units (GPUs), which have a massive following among PC gamers. The company significantly contributed to the growth of the $32 billion PC gaming industry. Nvidia’s triumph in this field enabled it to venture into other markets, securing profitable alliances with some of the tech industry’s most prominent players.
For example, Nvidia’s GPUs have been powering Amazon Web Services, the world’s largest cloud platform, for over ten years. This collaboration significantly enhanced Nvidia’s data center segment and reduced its reliance on consumer chip sales. In fiscal 2022, data centers eclipsed gaming as its chief sales segment, with a 41% year-on-year revenue increase to $15 billion.
Nvidia’s role as the primary chip supplier for OpenAI’s ChatGPT has cemented its metamorphosis from a gaming company to a premier AI chip designer. TrendForce data reveals that ChatGPT’s processing requirements for training data alone necessitated the equivalent of about 20,000 GPUs in 2020, a figure anticipated to surpass 30,000 as the platform gears up for commercial launch.
Through partnerships with Amazon and ChatGPT, Nvidia has established itself as the chief chip supplier to the most prominent names in cloud computing and AI. As these markets mature, Nvidia’s capability to distribute its hardware to other companies in these fields further solidifies its prospects.
Nvidia’s strategic partnerships and shift towards AI and cloud computing have undoubtedly placed the company at the forefront of tech innovation. While the current stock valuation might appear hefty, the company’s potential in these burgeoning sectors could make it a compelling investment. However, as with any investment, it’s crucial to consider both the potential rewards and risks. Nvidia’s trajectory depends on its strategies and performance and the growth and development of the broader AI and cloud computing markets. Therefore, investors must delve deep into the company’s prospects and market conditions before jumping on board.
