by Nvidia has soared to new highs on the stock market in recent weeks, fueled by optimism about the future of artificial intelligence (AI).
The chip maker – which is the main manufacturer of the graphics processing units (GPUs) commonly used in AI – closed above $2 trillion on Friday for the first time, making it the third most valuable company on Wall Street, alongside behind only Microsoft and Apple.
With the extensive “moat” Nvidia has gained through years of investment and development of its own widely used software ecosystem, experts said it’s unlikely rivals will be able to bridge the gap anytime soon.
“I think it’s Nvidia’s game to lose, and they’re showing no signs of losing right now,” Stacy Rasgon, senior analyst at Bernstein Research, told The Hill.
Nvidia has been developing GPUs for many years. The chips were primarily used for video games, until a discovery a decade ago spurred the machine learning community to use GPUs, said Tianqi Chen, an assistant professor in Carnegie Mellon’s Department of Machine Learning.
Computer scientist Geoffrey Hinton, known as one of the “godfathers” of AI, discovered that GPUs were more efficient at the kind of large-scale computing needed for machine learning, starting a “revolution deep learning,” Chen. said.
“The machine learning community has started to embrace GPU computing,” Chen said. “To this day, right, almost all AI models run on deep neural learning networks … many of them, even a majority, run on a GPU.”
Nvidia noticed this development and started creating libraries for machine learning within its software ecosystem, called CUDA, Rasgon said.
While Nvidia has been focused on developing its AI capabilities, its main competitor in the GPU market, Advanced Micro Devices (AMD), has fallen on hard times.
“It’s only in recent years that AMD and even others have had the resources to invest in data center and AI with GPUs,” Rasgon said. “But by then, Nvidia had a 10-year lead.”
“A lot of this comes down to: They recognized early on that this was going to be important. They started dedicating resources to develop products, both hardware and software, to go in this direction. They had competitors who weren’t interested in doing this or couldn’t do it. And they never lost faith,” he said.
Nvidia’s extensive guidance on GPUs is reinforced by the existence of its own software ecosystem.
“Nvidia has been a leader in AI GPU hardware, but more importantly, it has developed a proprietary software platform, Cuda, and these tools allow AI developers to build their models with Nvidia,” the equity strategist said Morningstar’s Brian Colello in a recent report.
“We believe that Nvidia not only has a hardware lead, but also benefits from high customer switching costs around Cuda, making it unlikely that another GPU vendor will emerge as a leader in AI training.”
If a developer tried to switch to AMD or Intel parts, they would have to completely rewrite their code, Rasgon noted.
“It’s a huge commitment,” he said. “And time is money, right? I mean, you want to get to market with this stuff as quickly as possible. It’s a lot easier if you’ve developed everything for the last 10 years on Nvidia parts to keep using them.”
Nvidia has started to look at its investment in GPUs in the last year, after the launch of OpenAI’s popular ChatGPT tool which has fueled intense competition among major tech companies to develop and release their own AI generation models.
The chip maker reached a market value of $1 trillion for the first time in May 2023. Nvidia has continued its rise in recent months, and its shares are up 77 percent since the beginning of the year.
Nvidia first crossed the $2 trillion mark late last month, after the company posted strong fourth-quarter results that beat expectations. It added $277 billion in market value in one day to briefly take it over $2 trillion, breaking Wall Street’s record for the largest one-day gain.
Nvidia shares rose again last week to close above $2 trillion for the first time, after Dell posted stronger-than-expected fourth-quarter results. Dell uses Nvidia GPUs in its servers, according to Reuters.
“Accelerated computing and generational AI have emerged. Demand is increasing globally across companies, industries and nations,” Jensen Huang, founder and CEO of Nvidia, said in the company’s latest earnings report.
The company took a hit in China last year, with data center revenue in the region dropping “significantly” after the Biden administration imposed restrictions on the export of advanced chips until late 2022.
Nvidia developed two new chips with reduced capabilities to bypass the restrictions, but the administration ultimately cracked down on these chips as well in October 2023, citing concerns that American technology could be used to strengthen China’s military .
The Santa Clara, California-based company’s dominance seems largely unassailable, at least for now.
Chips from peers such as AMD and Intel seem unlikely to overtake Nvidia, while in-house options from companies including Google, Microsoft, Amazon and Meta may serve specific purposes but probably won’t. they lack the flexibility offered by GPUs, Rasgon said.
Chen suggested that alternative chips could gain some of the market share if companies invest heavily in the software component. However, he also said that he does not think that Nvidia will lose its leadership position.
“In the long run, we expect tech titans to do their best to second-source or find in-house solutions to diversify away from Nvidia in AI, but these efforts will likely advance, but not replace, AI dominance Nvidia,” Morningstar’s Colello added.
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