Since I began my investing journey about 10 years ago, I’ve witnessed my share of emerging themes built on hype, euphoria, and hope. From blockchain technology to the metaverse, I don’t think I’ve seen anything quite like the excitement around the artificial intelligence (AI) megatrend.
Since OpenAI commercially launched ChatGPT on Nov. 30, 2022, the S&P 500 (SNPINDEX: ^GSPC) has returned 66% while the tech-heavy Nasdaq Composite (NASDAQINDEX: ^IXIC) has soared by more than 100%. In case you’re new to investing, these are abnormally high returns for such a short time period.
That said, the AI revolution has been anything but ordinary. One company in particular — semiconductor powerhouse Nvidia (NASDAQ: NVDA) — has emerged as the most potent company in the tech sector over the last few years. And I don’t think its momentum is slowing anytime soon.
Let’s explore how Nvidia became the most powerful force in the AI arena and assess what catalysts are on the horizon.
How and why Nvidia became king of the AI realm
Back in the late 1990s, Nvidia developed a piece of hardware known as the graphics processing unit (GPU). At the time, these chips were primarily used for one application: enhancing visuals for video games.
However, the company’s visionary CEO, Jensen Huang, understood that the GPU was far more ubiquitous. While use cases remained limited for years, the rise of AI paved the way for Nvidia to make a splash given these applications’ need for higher processing power.
Today, Nvidia is the gold standard for training and inferencing myriad generative AI products — from humanoid robotics, autonomous vehicles, and large language models (LLMs).
Unprecedented demand for Nvidia’s GPUs has ushered in a wave of historical revenue acceleration that’s been augmented with record profit growth — a testament to the company’s enormous pricing power in the chip market.
Perhaps unsurprisingly, Nvidia has seen its market value rise by a factor of nearly 13 times during the AI revolution — propelling the company past Apple and Microsoft as the most valuable business in the world.
Tailwinds worth trillions
At its core, a large portion of Nvidia’s future growth can be summed up by one accounting term: capital expenditures (capex). Capex is just Wall Street jargon for spending related to infrastructure and property buildouts, such as data centers.
