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Nvidia Surpasses Microsoft & Apple: Can It Maintain Hypergrowth?

Last Updated June 19, 2024 1:40 PM
Giuseppe Ciccomascolo
Last Updated June 19, 2024 1:40 PM
Key Takeaways
  • Nvidia has become the world’s most valuable company, surpassing Apple and Microsoft.
  • Analysts predict further growth in AI, potentially driving a “race to $4 trillion market cap” between tech giants.
  • Nvidia’s strategic investments in companies like Arm Holdings and SoundHound AI emphasize their commitment to furthering AI advancements.
  • The market now wonders whether there’s still room for growth for NVDA stock.

Chipmaker Nvidia has ascended to the top of the tech world, becoming the most valuable company  globally. Its share price reached a record high on Tuesday, pushing its market capitalization to a staggering $3.34 trillion. This impressive feat nearly doubled Nvidia’s value since the year began.

The stock closed at nearly $136, up 3.5%, surpassing the previous leader, Microsoft. Nvidia already dethroned Apple earlier this month.

Nvidia Becomes Most Valuable Company

Nvidia’s meteoric rise is fueled by the company’s dominance in a sector deemed by analysts as the “new gold or oil” of tech: artificial intelligence (AI) chips. Speaking at an event in Copenhagen, Chris Penrose, a high-ranking Nvidia executive, predicted even more growth in this area. He emphasized that the “generative AI journey” is fundamentally changing businesses around the globe, and we’re only just beginning.

Analysts at Wedbush Securities echo this sentiment, suggesting a potential “race to $4 trillion market cap” between Nvidia, Apple, and Microsoft in the coming year. However, other commentators remain cautious, questioning whether Nvidia can sustain such growth with increasing competition in the AI chip market.

At the time of writing, Apple‘s market capitalization is $3.29 trillion, with shares worth $214.29 each. Microsoft’s market cap is $3.32 trillion, with each share being traded at $446.34.
The recent market slump has hit most stocks hard, with all but one group of companies in the S&P 500 Growth Index  experiencing negative returns over the past month. Stocks in the top 10% by market cap (known as the 10th decile) – which includes tech giants like Microsoft, Nvidia, and Apple – actually saw an average return of 5.7%. Notably, these top 10 companies account for over 60% of the entire Growth Index’s weight.

In simpler terms, while the overall market is down, the impressive performance of a handful of mega-companies is keeping the Growth Index afloat. This highlights the significant influence of these large tech stocks on the index’s performance.

Nvidia Also Supports Other AI Stocks

A recent filing  with the Securities and Exchange Commission (SEC) reveals Nvidia’s strategic investments in the fourth quarter of 2023. These investments shed light on the chipmaker’s focus on the future of AI across various sectors.

Two key investments stand out: Arm Holdings (ARM) and SoundHound AI (SOUN). The first is a chip design giant representing a strategic move for Nvidia, potentially aiding the latter’s chip development. The value of their stake has already seen significant growth (98% year-to-date) due to Arm’s strong stock performance in 2024.

Microsoft, Apple, and Nvidia have different weights in S&P 500
Microsoft, Apple, and Nvidia have dramatically different weights in the S&P Technology Select Sector Index despite all being $3 trillion companies. l Source: investopedia

SoundHound’s development of virtual assistants using AI aligns with Nvidia‘s potential interest in expanding its AI platform. The company’s soaring stock price (123% year-to-date) further amplifies the value of Nvidia’s investment.

Nvidia’s portfolio also includes investments in Nano-X Imaging, which utilizes AI to improve medical imaging technology, and Recursion Pharmaceuticals, which leverages AI to accelerate drug discovery. Notably, they recently sold their holding in TuSimple Holdings, a company developing autonomous driving technology for the trucking industry.

These investments highlight Nvidia‘s commitment to fostering advancements in the AI field, with a focus on areas like conversational AI, healthcare, and transportation.

But Nvidia’s growth is still far from over, at least according to recent developments. The tech investment world is watching closely as the Technology Select Sector SPDR Fund (XLK), a major US tech exchange-traded fund (ETF), prepares for a potential shakeup this week. The driving force behind this is Nvidia’s (NVDA) phenomenal stock price surge this year.

Analysts predict  a significant shift in XLK’s holdings during its quarterly rebalancing on Friday, June 21, 2024. ETF research analysts estimate XLK could sell roughly $12.6 billion worth of Apple stock. And it may purchase approximately $10.9 billion worth of Nvidia shares based on current prices. While these figures seem likely, official confirmation from S&P Global, which maintains the underlying index for XLK, hasn’t arrived yet.

This potential rebalancing reflects Nvidia’s remarkable growth and could further fuel its stock price. It also underscores the dynamic nature of ETFs and how they adapt to market fluctuations.

Susannah Streeter, head of money and markets at Hargreaves Lansdown , told CCN.com: “With companies ring-fencing budgets to spend big on AI products and services, it leaves Nvidia well placed to enjoy further success, especially given its proven ability to adapt to new tech trends and raise the bar on processing power.
“Smaller rivals and even some of its major tech customers want a bigger slice of its market but given that it’s got such a big first mover advantage, Nvidia is set to stay top dog for a significant time. However, the exact path ahead for the demand for AI is hard to map and some volatility should be expected especially given its huge valuation.”
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