What's going on with Nvidia stock and the booming AI market?

The rise of Nvidia

Nvidia is one of the world's largest producers of GPUs. GPUs are computer chips or semiconductors that use math operations to produce visuals and images. The GPU manages and speeds up graphic workloads and displays visual content on a device such as PC or smartphone.

Each of Nvidia's earnings reports exceeded expectations throughout 2023 as AI started gaining momentum and attention. Nvidia's advanced chips can use and process the massive amounts needed to train generative AI programs, such as ChatGPT and Gemini. Since Nvidia dominated this market before the increasing need for AI, Nvidia only grew larger as demand soared.

Nvidia reported revenue of $22.1 billion for its fiscal fourth quarter ending Jan. 28, 2024. This revenue was up 22% from the third quarter and up 265% from one year prior. The company earned $60.9 billion for its full-year revenue, which was up 126%.

Businesses need hardware to support high amounts of energy with the AI wave, but these advanced chips are also needed for the metaverse, gaming and spatial computing. Nvidia also makes chips for cars as technology continues to advance.

The core reasons for the rise of Nvidia stock

The rise of generative AI is one of the key factors of Nvidia's rise. However, there are some other reasons Nvidia stock increased significantly.

1. The rise of supercomputers

Nvidia's chips power supercomputers because of the large amounts of data needed for this advanced technology. Supercomputing technology is used by companies, such as Meta for its AI Research SuperCluster computer, to train complex AI models. Tesla is also starting to build an AI-focused supercomputer for its vehicles.

2. Demand for generative AI

With no signs of the demand for generative AI slowing down, Nvidia is poised to grow as each new system is adopted. The AI industry is expected to grow at a compound annual growth rate of 42% in the next 10 years, according to Bloomberg Intelligence. The demand for generative AI products could make the generative AI market worth $1.3 trillion by 2032.

Nvidia's A100 GPU chips are used in training the model for ChatGPT. Companies, such as OpenAI, that use large amounts of data for tasks such as training large language models evolve quickly and need more accelerated computing. The demand for GPUs will only grow as these systems train and evolve with more data.

3. The changing world of the metaverse and XR

Nvidia has played a role in the metaverse and the virtual and augmented reality landscape with its Omniverse platform. Nvidia offers 3D modeling programs to help stream extended reality (XR) content efficiently. As the metaverse evolves, so does the demand for Nvidia chips to run the metaverse. Companies are turning to XR programs to create virtual environments for training.

The gaming world is also a large customer of Nvidia's graphics division. Video games need stronger cards to run the high-resolution images, especially as more games move to the cloud and away from the console. Nvidia's gaming GPUs, such as GeForce RTX 4070, help power video games at a higher resolution and quicker speed.

4. Strategic placement

Nvidia is a large part of the cryptocurrency world. Miners use its cards for mining tokens, which requires a great deal of power. There was an unprecedented demand for Nvidia's cards as cryptocurrency took off.

Future of Nvidia

While Nvidia's processors run most of the data centers that power generative AI, there are still some possible challenges ahead, including competition from tech giants to make their own AI chips, economic uncertainty and a rise in competition.

The generative AI market is expected to continue growing, but more rules and regulations are going to be introduced that could affect Nvidia's AI chips. The U.S. trade restrictions on China's advanced semiconductors are also impacting Nvidia's growth, as Chinese sales were a large part of Nvidia's data center sales.

With Nvidia's noticeable growth, other competitors are offering similar chips, such as AMD's Instinct MI200 family of GPU accelerators. Intel also launched a set of fifth-generation Intel Xeon processors for data centers. Companies may not want to rely on one company and will start exploring these other vendors, which could hurt Nvidia's growth.

It's hard to predict whether Nvidia will continue its growth at its current pace. Nvidia has built a solid foundation in the AI market, and if the generative AI market grows as predicted, its revenue will continue to grow. But it's unknown how much of the market Nvidia's competitors will take. Nvidia still has a strong share in the face of rising competition as it recently announced its H200 computing platform. Cloud providers such as Amazon, Google and Microsoft have developed AI processors, but they work with Nvidia chips.

The market is evolving quickly. Enterprises are looking to adopt generative AI, leading to the creation of new vendors to meet business needs. New areas such as security and compliance will also change the generative AI market in the business world.

Learn more about other companies on the stock exchange innovating in AI.

Amanda Hetler is senior editor and writer for WhatIs, where she writes technology explainer articles and works with freelancers.