Nvidia Emerges as the Rising Star in the AI Epoch

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Nvidia Emerges as the Rising Star in the AI Epoch


People’s obsession with AI is unprecedented, humongous and worth the buzz, driven by the promise of increased productivity. As attention gravitates towards AI tools and applications, so does investment in AI-related companies that are expected to ride the AI wave and monetize this new technology.

The AI wave picked up at the end of 2022 with the launch of ChatGPT marking the onset of transformative changes AI could usher into the world. Over the last 2.5 years, AI has taken the world by storm with the proliferation of applications and the race of tech giants to adopt AI on their platforms.

Dubbed the “Magnificent Seven,” seven tech juggernauts stand at the forefront of this AI race: Google (Alphabet), Apple, Tesla, Amazon, Microsoft, Facebook (Meta) and finally Nvidia. While the first six are household names, Nvidia’s recent entry to the group has made it to news headlines. While it has been the last to join the lucky group, it stands at the core of the AI wave given its domination of the design and manufacturing of GPUs (Graphical Processing Units) needed by the different tech players to develop AI platforms and applications.

It might come to mind that Nvidia is a new company that started a few years ago, but in reality, its roots extend more than 30 years. It was publicly listed 25 years ago, but its quantum leap coincided with the rise of AI as the escalating demand of tech companies for GPUs to develop AI platforms and applications caused the demand for Nvidia’s chips and data centers to skyrocket.

Nvidia’s growth over the past few years is nothing short of phenomenal. Five years ago, the company used to generate around $2 billion in revenue quarterly, while in its last quarter, it soared to more than $26 billion—an outstanding 13-fold increase in revenue. Accordingly, the company has been beating analysts’ expectations every quarter in the last period.

With this phenomenal growth, the stock price of Nvidia skyrocketed. The stock was trading five years ago at around 50 $ level and by the end of 2022, just as the wave of AI was taking off, it was trading at around 100 $ level. Then in just 30 months, the stock rose more than 10 times, breaking the 1,000 $ level and trading nowadays at around 1,150 $, generating absurd returns compared to S&P 500 or Nasdaq, which have been delivering very positive returns in the last few years, but dwarfed when compared to Nvidia’s returns.

 

Despite the huge jump and spectacular gains, many analysts and investors have the conviction that Nvidia’s good days are yet to come. They expect Nvidia’s revenue to grow even faster as the company moves from merely providing hardware and software for the AI ecosystem, to developing its own platform to be the base for many AI tools and applications across different sectors.

While the Magnificent Seven represents a captivating ensemble, six out of those seven companies have reigned atop the tech sector for some time now, turning them into incumbents. The dynamics between Nvidia and the rest of the Magnificent Seven are worth watching, to say the least. Most of them are dependent on Nvidia for the supply of GPUs and other services, but Nvidia will probably be competing with them directly in different domains and the outcomes of such a battle will define many things, not only for Nvidia as a company but also for the tech industry and the AI era as a whole.

In essence, the proliferation of AI and its applications marks a remarkable epoch. The new AI era is being led by the Magnificent Seven tech companies, which are predominantly incumbents striving to harness and ride the AI wave, except for Nvidia. Nvidia, the newcomer to the group and the rising star, is providing the needed GPUs to power the AI era. But as Nvidia grows, it stands at a critical juncture as it carves out a suitable place for itself in the tech sector among the Magnificent Seven. This shall be an interesting and detrimental dynamic to watch and one that will affect our lives for real.

(Important Note: This article doesn’t offer a stock recommendation for Nvidia or any of the other Magnificent Seven companies. The stocks of these companies may be overvalued or undervalued. This article shouldn’t be used as a basis to make an investment decision on those stocks in any way)

Omar El-Shenety,
Managing partner at Zilla Capital and adjunct faculty at AUC School of Business

    Knowledge Partners

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