Nvidia is inarguably one of the most dominant companies in the world right now, making up 30% of the S&P500’s revenues from the start of this year through June, and taking up 90% of the market share for AI GPU chips. Currently the third largest company in the world, though it is constantly fluctuating from first to third along with Microsoft and Apple.
Specializing in GPU chip manufacturing, this nearly three trillion dollar company is the backbone of the AI industry. In the past, the dominant chip manufacturers (Intel and AMD) had specialized in producing CPU chips, which served as the basis for computing and software processes, trumping demand for the more video game- centric GPU chips. However, it turned out that GPUs are not only better for rendering graphics but also performing multiple calculations at the same time in a way that CPUs cannot. This also translated to GPUs being more efficient and being able to complete much more complex computing processes.
When OpenAI released its ChatGPT in 2022, the entire Silicon Valley followed suit into the AI revolution, creating a need for Nvidia’s GPU chips. Evidently, the entire AI industry is still heavily reliant on Nvidia for the supply of most of its computer chips. So, when Nvidia did not meet expectations, its stock immediately slipped.
During late August, Nvidia’s share price fell by 6% in after-hours trading in New York. Though this is not an extremely significant value, it is still out of character for such a strong stock to be dropped by traders.
Nvidia’s revenue had more than doubled in the last quarter and its current AI chip “Hopper” has been largely successful. However, this growth was still not able to meet the incredibly high expectations put on the company as Wall Street’s proverbial “star child”. Also, a delay in the production of their new Blackwell chip may have also affected the market’s decision to sell some of Nvidia’s stock.
This slight drop in stock will probably not have any large impact. Nvidia is an extremely large and successful company, and despite their price falling by 6% recently, it has been up 150% for the entire year. Though Nvidia’s gross margin dropped from 78.4% from the previous quarter to 75.1%, their gross margin is still up from 70.1% the previous year and is expected to remain in the mid 70% range.
Overall, it is expected that a company as large as Nvidia cannot continue to grow at the exponential rate demanded by the market. However, this does not mean that their growth is halting or even slowing. Nvidia is still an incredibly dominant and valuable company, and will likely stay in this position for the foreseeable future. This small dip in stocks is just a reminder of how significant Nvidia is, with a slightly lower-than-expected growth causing traders to drop its stock.
Written by Vi Lam Dinh
