Nvidia's AI Bet Pays Off, Makes Chipmaker The World's Most Valuable Company

Nvidia further enhanced its appeal to retail investors last week by executing a 10-for-one stock split, a move aimed at making its shares more accessible.

Nvidia Corporation has now surpassed Microsoft Corporation to claim the title of the world's most valuable company. This ascent comes on the back of soaring demand for Nvidia’s high-performance processors, which are pivotal in the race to dominate artificial intelligence technology. On Tuesday, Nvidia’s shares surged by 3.5 per cent to reach $135.58, propelling its market capitalisation to $3.335 trillion. This milestone follows closely on the heels of Nvidia surpassing Apple Inc. to become the second most valuable company just days earlier.

In contrast, Microsoft saw a slight decline in its market value, settling at $3.317 trillion, while Apple slipped to $3.286 trillion as its stock dipped over 1 per cent, reported Reuters.

Nvidia Rides High On AI

Nvidia's extraordinary rise in market value reflects the fervent enthusiasm on Wall Street surrounding advancements in AI technology. The company has not only ascended to the pinnacle of market valuation but has also become the most actively traded entity on Wall Street, with daily turnover averaging $50 billion. This significantly outstrips trading volumes for tech giants like Apple, Microsoft, and Tesla, each averaging around $10 billion daily.

Nvidia’s stock has nearly tripled in value this year alone, driven by insatiable demand for its cutting-edge processors, which are in short supply. This demand surge underscores Nvidia's dominance in AI computing, positioning it ahead of rivals in the tech landscape including Microsoft, Meta Platforms, and Alphabet Inc., all of whom are vying to enhance their AI capabilities.

Investors have responded to Nvidia’s meteoric rise cautiously, mindful of the volatility that often accompanies such rapid growth. Oliver Pursche, Senior Vice President at Wealthspire Advisors, cautioned, "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, and investors should be careful."

More Than $110 Billion Gain In 1 Day

Tuesday's rally propelled Nvidia’s stock to a historic high, adding more than $110 billion to its market cap in a single day—an increase equivalent to the entire market value of Lockheed Martin Corporation.

Nvidia's journey to becoming a trillion-dollar company earlier this year underscores its trajectory in the tech sphere, driven by robust financial performances that consistently outstrip market expectations. With demand for its graphics processors far exceeding supply, Nvidia remains a front-runner in embedding AI applications across various sectors.

Despite its stellar performance, Nvidia's price-to-earnings ratio has moderated from previous highs, currently trading at 44 times expected earnings, down from over 84 a year ago, according to LSEG data.

10-For-One Stock Split

Last week, Nvidia further enhanced its appeal to retail investors by executing a 10-for-one stock split, a move aimed at making its shares more accessible.

While Nvidia’s success has buoyed broader market indices to record highs, concerns linger among some investors about the sustainability of current AI-driven market exuberance. As Steve Sosnick, Chief Market Strategist at Interactive Brokers, remarked, "It’s Nvidia’s market; we’re all just trading in it."

As Nvidia continues to navigate the competitive landscape of AI technology, its future trajectory remains closely watched by investors and analysts alike, poised for potential shifts in market sentiment and technological developments.