What you need to know about the company, its importance to AI and whether the stock market boom is sustainable
Investor excitement over artificial intelligence reached a new peak this week when better-than-expected results from chipmaker Nvidia drove stock markets in three continents to record highs.
The rally began on Thursday and continued into Friday, as Nvidia overtook Google’s parent group, Alphabet, to become the third most valuable company in the US. Its market capitalisation hit $2tn (£1.58tn), surpassed only by Microsoft and Apple.
The artificial intelligence (AI) boom has raised many questions, not least over safety and the impact on jobs, but there are also concerns that it might be driving unsustainable market exuberance. Here we look at the latest share price rise and whether it can be maintained.What does Nvidia do and why is it important to AI?
Nvidia makes the chips that are crucial to training and operating AI systems – they can carry out the immense data crunching required for tools like chatbots very quickly – and the demand for this crucial infrastructure is soaring as big tech firms join the AI race and make products such as ChatGPT that people want to use.
If Nvidia is reporting strong demand for its products, then it is a clear sign that demand for the technology is thriving – and investors will inevitably follow.
On Wednesday, the US-based firm surprised markets with the strength of its fourth-quarter earnings. It posted revenues of $22.1bn – against expectations of $20.6bn – and then forecast revenue growth of 233% in the current quarter, ahead of Wall Street forecasts of 208%.
Nvidia’s chief executive Jensen Huang said demand for generative AI – technology that immediately produces convincing text, images and audio from simple typed prompts – had reached a “tipping point”.How did markets react?
Several leading indices have started the year strongly and reached fresh highs after the Nvidia results. On Thursday, Japan’s main stock market index, the Nikkei, increased 2.19% to close at 39,098.68 in Tokyo – the highest it has been in 34 years.
Over the longer term, other factors have boosted the Nikkei, including capital fleeing troubled waters in China and a fall in the value of the yen, but Nvidia’s results had a knock-on effect around the world.
Europe’s STOXX 600 and Wall Street’s blue chip Dow Jones and S&P 500 indices all reached new highs. Nvidia was a big beneficiary too, of course, posting the biggest ever single-day increase in the value of a listed company as its worth rose by $277bn to more than $1.
