From a garage startup to a $2-trillion tech giant

Nvidia’s journey from a modest start-up to becoming a trillion-dollar giant is a testament to its vision, and ability to adapt to a fast-paced market.

It took Nvidia, the global AI chip powerhouse, 24 years as a public company to reach a valuation of USD 1 trillion in June 2023. The second trillion took just eight months! Nvidia touched USD 2 trillion this February, becoming the third most valuable tech company globally, after Apple and Microsoft.

Let us take a quick look at Nvidia’s remarkable journey, its current market dominance, and the potential challenges it faces.

From humble beginning to computing powerhouse

Founded in 1993 in California, Nvidia began its foray into the world of Graphics Processing Units (GPUs), chips responsible for generating visuals on computers. In the early days, the company focused on gaming GPUs, catering to the growing demand for immersive and realistic experiences.

As market and technology evolved, they pioneered the concept of general-purpose computing GPUs, which leveraged the parallel processing power for tasks beyond graphics, such as running scientific simulations and complex artificial intelligence (AI) models.

This strategic shift proved to be a game-changer. With the explosion of AI in recent years, GPUs have become the backbone of AI models. Nvidia’s GPUs are now the go-to choice for leading tech giants like Microsoft, Amazon, Google, and Meta who spend billions of dollars on their AI projects.

Nvidia’s GPUs are now the go-to choice for leading tech giants like Microsoft, Amazon, Google, and Meta who spend billions of dollars on their AI projects.

Market domination

Nvidia has transformed itself in the space of three years from a company focused on chips for video games to those that run AI. With billions flowing into AI and Generative AI, the company has a massive market share of around 80%.

This growth can be attributed to strong demand for AI solutions across diverse industries, including finance, telecommunications, manufacturing, and healthcare. Further, diversification into non-traditional markets such as gaming consoles, data centre solutions, and automotive cemented Nvidia’s market position. Frequent investments in complementary AI start-ups also strengthen its market standing.

Financial performance

The stock is up six-fold in 16 months.

The past months have witnessed an unprecedented surge in Nvidia’s financial performance, culminating in a staggering USD 2 trillion market capitalisation. Its recent fiscal Q4 revenue has tripled compared to the corresponding period of the previous fiscal year. Earnings grew nine-fold. This is unparallel.

Such exponential growth is exemplified by recent instances where Nvidia’s single-day rallies eclipsed the entire market capitalisation of established entities like Coca-Cola or Reliance Industries. However, even amidst this success, it is crucial to acknowledge the competitive landscape and potential risks for Nvidia’s growth.

Competitive landscape

Nvidia faces competition from established players like AMD and Intel, as well as from China’s Alibaba and Baidu, who are making significant investments in AI hardware development. Even some of Nvidia’s biggest customers such as Google and Amazon, wary of the company’s strong position, are racing to make their own AI chips that could supplant its products. Microsoft and Meta have started their chips more recently.

This competition will necessitate continuous innovation and strategic manoeuvring from Nvidia to maintain its market position.

Navigating uncertainties

While Nvidia’s trajectory appears meteoric, it is vulnerable to other headwinds. The current supercharged investment in AI could eventually saturate, leading to a slowdown in demand for Nvidia’s products. Over-reliance on a handful of customers is also a clear risk.

Anticipated economic downturns could dampen the demand for tech infrastructure, while geopolitical tensions as well as trade disputes and sanctions

may disrupt global supply chains, limiting Nvidia’s

access to China and Russia, among others. Regulatorsin some countries have launched probes into Nvidia’s dominant position, which could lead to unfavourable situation(s).

India’s semiconductor aspirations

The success stories of companies like Nvidia serve as a strong motivator for others to join India’s exciting journey in the semiconductor landscape.

India has embarked on a journey in the semiconductor landscape. The government’s ambitious initiatives, such as the Rs 76,000 crore (about USD 9 billion) Semicon India Program, aim to attract both domestic and international players to establish semiconductor fabs, design houses, and packaging facilities.

Leading companies like Micron, Foxconn, PSMC Taiwan and Tower Semiconductor, alongside Indian conglomerates such as Tata Group, HCL, Vedanta, CG Power and the Murugappa Group, are actively contributing to India’s semiconductor ecosystem. Notable among these is the proposed USD 11 billion foundry unit of Tata and PSMC in Gujarat, which has just received government approval.

Nvidia’s journey from a modest start-up to becoming a trillion-dollar giant is a testament to its vision, and ability to adapt to a fast-paced market. Analysts predict that, amidst a global proliferation of AI solutions, the company’s stock could triple over the next four years.

As the future of AI unfolds, Nvidia is undoubtedly positioned to play a pivotal role in shaping the computing landscape for years to come.

By Jaideep Ghosh

The author is a former Partner at KPMG in India. Views are personal.

feedbackvnd@cybermedia.co.in