Nvidia, a company that deals in graphics processing units to make nearly every computer display work, had its stock price boom, becoming the world's largest by market capitalization. This rise is extraordinary for one facing competition from companies such as Apple and Microsoft.
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While Nvidia's stock had been steadily growing up until 2020, nothing could have prepared us for the explosive growth that began in 2021. Financial markets were booming, and Nvidia rode with it, but the absolute explosive growth for the company's stock happened in 2023. Its market capitalization overshot those of Apple and Microsoft, two powerful tech-related competitors very rapidly. The current market capitalization for Nvidia is roughly $3.335 billion, a notch above that of Microsoft and Apple.
The fascinating fact is that the growth of Nvidia outpaced even that of Bitcoin, which itself is known for wild price swings. Its stock rose 240% in 2023, while the price of Bitcoin rose 153%. This year, the gap is much more significant: Nvidia by 180% since January and Bitcoin by 50%. What this draws attention to is just how big of a surge in its stock Nvidia has had.
The reasons behind Nvidia's rise are pretty obvious. It is simply the largest maker of chips for artificially intelligent computers, a technology whose demand has increased dramatically, thereby lifting the sales of this company through the roof. There is no trend feeling to this; it is a sea change in technology, tipping industries from one end of the spectrum to another. That places Nvidia on sound footing with its leadership positioning for continued growth.
Faster-than-expected growth always raises questions about the sustainability of its stock price. People are starting to wonder if this Nvidia surge is just another speculative bubble. We all saw a case similar to that in Bitcoin in 2021, surging by 470%, only to nose-dive by 75% the following year. But there are key differences here. The rise in Nvidia is well supported by sound economic fundamentals and actual demand, not something that speculative bubbles naturally lack.
Perhaps one such methodology is to examine the price-to-earnings ratio of Nvidia's stock. Though the P/E for Nvidia has not shot through the roof, in 2019, it was about 2.1 points; now, it is 10.3. While this might seem a bit high, putting this in perspective, Microsoft currently sits at a P/E of 38.5 and Apple at 33 points, the ratio for Nvidia would suggest that it does have some heavy earnings to support its exceedingly high stock price.
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The comparison with other tech stocks is a telling one, too. Microsoft, which Nvidia just overtook in market capitalization, was quite good in 2023, with shareholders enjoying a 63% increase in the stock price, but it's only managed to notch a 20% rise so far in 2024; Apple has boasted an 18% rise this year. These figures pale by comparison with Nvidia, underscoring just how extraordinary its growth has been.
Stepping back from Nvidia's trajectory, one thing is obvious: with its leading position in a significant technological change and increasing demands for AI, the company looks well-primed and ready to take full advantage. Of course, just as any explosive increase in a stock's price will do, there is a significant risk that this party may end at any moment. However, given Nvidia's fiber of underlying business strength, it has something unique to evoke an air of confidence that all this is not just a speculative bubble.