A few years ago, Nvidia was considered a little company that manufactured advanced chips for video games. Today, CEO Jensen Huang's chipmaking titan, devised at a Denny's, is on top of the mountain. The multi-trillion-dollar giant's rise did not happen because of luck or Huang's leather jacket. Instead, Nvidia simply makes a great product unmatched by its industry competitors.
Nvidia – Now, Then, Forever
Every three months or so, investors brace for Nvidia’s earnings report. Traders are either excited that the tech juggernaut will lift the stock market to new highs with a better-than-expected release or tear down the walls of the New York Stock Exchange if it falls short of market estimates. So far, Nvidia has rarely disappointed Wall Street.
What a journey it has been for the business. At the end of 2019, Nvidia's market cap was about $144 billion, similar to Intel. By the end of the December 5 trading session, its value sits firmly above $4 trillion, making it the most valuable company on the planet.
The main reason for its success in recent years is artificial intelligence (AI). Nvidia is powering AI's development, primarily through its A100, H100, and Blackwell chips. Of course, other graphics processing units (GPUs) have been essential to its growth, from Quadro and RTX professional GPUs to the Tegra mobile processors. But its bread and butter, if you will, is AI.
It is no coincidence that Nvidia started its meteoric ascent at around the time of OpenAI’s ChatGPT in late 2022. ChatGPT had opened Pandora’s box, and Wall Street and the global economy never looked back. Since then, a plethora of generative AI models have been created, from X’s Grok to Google’s Gemini, even outpacing the new kid on the block. Generative AI is merely one piece of the puzzle, as data centers are critical to advancing the technology – and keeping the economy afloat.
Nvidia is at the forefront of it all. Just look at these numbers from the latest quarterly earnings: $57 billion in revenue, $32 billion in profits, and fourth-quarter guidance of $65 billion. In addition, as the saying goes, a rising tide lifts all boats. While Huang is sitting on a cash stockpile, he is also doing something with it. This year, he has been actively investing in AI infrastructure, tech companies, industry competitors, and the US economy.
Until the world’s appetite for its chips slows, Nvidia will continue to be a powerhouse, a jackhammer, an apotheosis of international finance. But are there hiccups popping up?
The World Burns When Nvidia Pauses
The US stock market is at or near all-time highs. Despite tariffs, elevated inflation, a potentially deteriorating labor market, and geopolitical tensions, equities have been the engine that could. Then why does this feel like the most fragile bull market on record? It is because the consensus is that AI is in a bubble comparable to the dot-com boom 25 years ago, and everyone is waiting for it to pop.
Some say we are in the early stages of the AI buildout, while others contend that corporations are spending too much when it is unclear if there is sufficient demand to justify investments. Who knows? If predicting the future were easy, we would all be millionaires.
But minor cuts and bruises could be forming, at least in Nvidia’s case.
For example, the latest filings suggest that Nvidia's customers are stretching out their payment timelines, even as accounts receivable have risen despite surging revenues. CFO Colette Kress acknowledged this development, noting that payment terms have lengthened for large cloud providers, including Amazon, Google, Meta, Microsoft, and Oracle. Put simply, extended payment terms could inflate accounts receivable and leave Nvidia vulnerable to customer-concentration risks. The good news, however, is that its balance sheet remains solid, with $60 billion in cash.
Another issue is that major investors such as Japan's SoftBank and PayPal's Peter Thiel have exited their Nvidia positions. SoftBank did so to use its profits to support its OpenAI bets, while Thiel dumped his stock over bubble fears. Production costs, supply chain constraints, and heightened competition are some other concerns market watchers are monitoring.
Q4 and Beyond
The fourth-quarter Nvidia earnings release will be the most critical report in history. That is, until the next year’s first-quarter figures, the second-quarter figures, and so on. For now, institutional investors, armchair traders, and governments can rest assured that there is no fire to be put out. Nvidia has everything under control. Don’t be terrified. Everything is fine – until the bubble pops and there is panic on The Street.
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