The year was 1999. Steve Jobs has just returned to lead Apple. Intel was the leading player in semiconductors. And Nvidia, a relatively unknown chipmaker, made its Nasdaq debut. Nvidia Corp. ascended to the S&P 500 in fewer than three years, displacing Enron, the discredited oil-trading corporation.
Even yet, few would have predicted that the company would go on to become the greatest performing stock of the last quarter century, with a total return of 591,078 percent since its initial public offering, including reinvested dividends. It's a difficult number to understand, and it reflects, in part, the financial fever growing around artificial intelligence and how investors have come to regard Nvidia - which manufactures the cutting-edge chips that enable the technology - as the single-largest beneficiary of the boom.
On Tuesday, Nvidia overtook Microsoft Corp. as the world's most valuable business, with a market capitalization of $3.34 trillion. This year alone, more over $2 trillion has been added to the valuation. The company's growth was not guaranteed, nor is its long-term position at the top of the S&P 500. Long-term Nvidia investors have endured three yearly stock declines of 50% or more. To keep the present upswing going, clients will need to continue spending billions of dollars per quarter on AI equipment, which has so far produced rather low returns on investment.
What ultimately propelled Nvidia to the top was the company's big bet on graphics chips, as well as co-founder and CEO Jensen Huang's vision of the industry shifting to what he calls "accelerated computing," which his chips are inherently better at than the competition.
"You have to give the management team, I think, an enormous amount of credit," said Brian Mulberry, client portfolio manager at Zacks Investment Management. "They have caught each wave of innovation in hardware perfectly well." Here's a look back at Nvidia from its initial public offering to the present.
Nvidia Got Off to a Fast Start
Between its debut and its entry into the S&P 500, the stock increased by more than 1,600%, giving it a market value of around $8 billion. That surge occurred as many other technology equities plummeted in the aftermath of the dot-com boom, which peaked in March 2000.
The company's key to early success was getting its technology inside video game consoles such as Microsoft's Xbox and Sony's PlayStation. Nvidia's GeForce graphics processing units (GPUs) became popular among gamers because they constantly provided the most realistic experience.
"Jensen was always a great communicator, told a good story, and clearly GPUs were becoming more important," said Rhys Williams, chief strategist at Wayve Capital Management, which invested in the IPO. "Each successive generation of hardware gave a lot better performance, a lot more realistic picture and then PC gaming really came into being."
Nvidia suffered greatly during the next six years. The stock fell in 2008 as the financial crisis impacted demand and long-time rival Advanced Micro Devices Inc. began to recover. Meanwhile, an arrangement between Nvidia and Intel that allowed the businesses to exploit each other's capabilities failed, driving Nvidia out of one of its most important markets. In 2011, Intel agreed to pay Nvidia $1.5 billion as part of a settlement agreement.
The following year, Nvidia introduced graphics chips for servers in data centers. They could aid in advanced computer tasks such as oil and gas exploration and weather prediction, allowing Nvidia to gain a foothold in a potentially profitable field. However, those chips did not immediately fly off the shelves. It would take nearly nine years for Nvidia shares to surpass their 2007 peak.
Nvidia stock rose again in 2015. During that time, the company's chips served as the foundation for a variety of future technologies, including enhanced graphics interfaces, autonomous vehicles, and a new wave of AI products.
That's when Shana Sissel, CEO of Banrion Capital Management, first took notice of the company. She mentioned a 2017 meeting where Nvidia was more of a pageant winner than an investment opportunity. "Every single speaker talked about Nvidia being the most important company," stated Sissel. "At that point, it was really on my radar screen."
Even after demand from cryptocurrency miners fell, data-center sales continued to rise. The Covid-19 outbreak bolstered that industry, as businesses needed to buy more computing power to enable distant work. Between fiscal 2017 and fiscal 2021, Nvidia's data-center revenue increased by eightfold. Nvidia's stock fell in 2022, along with the rest of the technology sector, which was hit by rising interest rates and dwindling demand following the Covid-era boom.
OpenAI's release of ChatGPT in late-2022 made an immediate sensation, but it took some time for investors to recognize how Nvidia may gain. Eventually, demand in ChatGPT and other generative AI technologies surged, resulting in a frenzied rush in orders for Nvidia chips.
When the company reported first-quarter 2023 earnings, the magnitude of the increase in its business surprised practically everyone on Wall Street. Nvidia forecasted quarterly sales that were more than 50% higher than the average expectation. Nvidia's data-center sales surpassed gaming revenue for the first time in fiscal 2023. Analysts predict Nvidia's sales to exceed $100 billion this fiscal year.
"They have a very defensible place in the industry," said Williams, Wayve Capital Management's strategist. "They're not gonna be 95 per cent of market share forever, obviously, but it would be almost impossible for anybody to replace them," he adds.
