NEW YORK – Nvidia became the first chipmaker to touch a US$1 trillion ($1.35 trillion) market valuation on Tuesday, as excitement over artificial intelligence (AI) technology drove a massive rally in the stock.

The stock rose as much as 7.7 per cent early in the session, putting Nvidia well into US$1 trillion territory, before retreating from the milestone during the afternoon.

Alphabet, Amazon.com, Apple and Microsoft are the only other United States businesses to have trillion-dollar valuations, and fewer than 10 companies globally have achieved the distinction.

Nvidia closed up 3 per cent to US$401.11 in New York on Tuesday, putting its market capitalisation at US$990.7 billion.

Nvidia has powered past other semiconductor companies as it is the world’s biggest maker of the specialised chips needed to power a new generation of AI products. 

Not only has it trounced the performance of other components of the index – it has done roughly twice as well as the next-best performer, Advanced Micro Devices, up 93 per cent in 2023 – but it has vastly eclipsed them in size.

The second-biggest component of the semiconductor index is Taiwan Semiconductor Manufacturing Co, which has a market capitalisation of more than US$530 billion.

In third place is Broadcom, valued at just over US$360 billion.

Nvidia’s massive bet on AI

No other company embodies Wall Street’s current obsession with AI more than Nvidia.

It has become the world’s biggest maker of the specialised chips needed to power a new generation of AI products, just as the viral success of ChatGPT has virtually every company around the world baking AI into its operations.

In a speech at the National Taiwan University over the weekend, its chief executive Jensen Huang shared the philosophy that has brought his company to this moment: “Run, don’t walk,” he said. “Either you are running for food, or you are running from becoming food.”

Mr Huang’s urgency – and his willingness to take risks that other rule-by-committee businesses dare not – is what compelled Nvidia, the Silicon Valley chipmaker he founded 30 years ago, to make big bets on AI years before anyone else was taking it seriously.

Today, it is proving to be the company’s golden goose.

Nvidia’s shares have soared since last week, when it gave an AI-fueled sales forecast that shattered Wall Street’s estimates.

The stock continued to gain on Tuesday after announcing several new AI-related products over the weekend that touch on everything from robotics to gaming to advertising and networking.

Mr Huang also unveiled an AI supercomputer platform that will help tech companies create their own versions of ChatGPT.

“It’s too much,” Mr Huang said during his presentation of the platform in Taiwan. “I know it’s too much.”

But not everyone is bullish.

In an interview on Bloomberg TV on Friday, Ms Cathie Wood, whose flagship ARK Innovation ETF fund cut its holding in Nvidia in January, warned that the computer-chip industry’s boom-bust cycles pose risks.

“There are a few reasons we take some pause,” she said, with competition growing among firms for a piece of the AI market.

She called Nvidia “a check-the-box stock”.

Mr Huang has a knack for riding tech trends – selling graphics chips that powered everything from the video game boom to the rise of cryptocurrency and the industry’s big bet on the metaverse. But arguably, no trend stands to benefit his company more than the rise of AI.

Last week, the company issued an AI-fueled sales forecast of US$11 billion in the fiscal second quarter, blowing Wall Street targets out of the water and growing its value by US$184 billion in a single day.

“We have never seen a guide like the one Nvidia just put up,” Sanford C. Bernstein analyst Stacy Rasgon said at the time.

Under Mr Huang, who co-founded the company in 1993, Nvidia has pushed its technology into new markets, such as data centre servers and AI processing – a move that is proving prescient today.

In less than a decade, Nvidia’s data centre business has grown from US$300 million in annual revenue to US$15 billion.

The chipmaker has won orders to equip giant computing factories by successfully arguing that graphics chips can handle AI workloads better than more standard processors.

It has become commonplace for tech companies to talk up their AI prospects during earnings conference calls.

References to AI soared after the launch of ChatGPT in November, and they do not always spark a stock rally. But Nvidia has now become the model of a company that is actually making money from AI. It is the seller of picks and shovels in the gold-rush analogy.

Nvidia’s success has made investors even gloomier about Intel, a Silicon Valley pioneer and the company most synonymous with computer chips.

While many chipmakers saw their stocks gain in the wake of Nvidia’s blockbuster earnings last week, Intel actually fell.

Nvidia’s valuation is now more than eight times that of Intel, despite the company having far less revenue. BLOOMBERG