Nvidia now fourth biggest company in the world; have new investors missed the boat?

Last week, Nvidia became the fourth largest company in the world. Its share price rose 239% in 2023 and is already up 51% in 2024

As a result, it has become a retail investor favourite – it is the most bought stock globally on eToro in 2024 so far. Ahead of its quarterly earnings announcement on Feb 21, Sam North unpacks Nvidia’s rise and asks whether it is too late to invest.

Nvidia is now the fourth biggest company in the world. So have new investors missed the boat?

“Two years ago, you may have been hard-pressed to meet someone who had heard of Nvidia. Yet fast forward to 2024 and they look set to cement themselves as the fourth biggest company in the world if things keep going the way they have been. In the US, as of today’s share price, Nvidia trails only Microsoft and Apple when it comes to market capitalization, edging ahead of tech giants Alphabet (Google) and Amazon. So how did this happen, who are Nvidia and what exactly do they do?

“The firm was founded in 1993 and is based in Santa Clara, California. As a leader in the design and manufacturing of graphics processing units (GPUs), Nvidia’s products are widely used in gaming, professional visualization, and data centres.

“In recent years, the company has very effectively extended its influence into AI and deep learning, with its GPUs becoming pivotal in training and running complex neural networks. Revenue streams are diverse, encompassing GPU sales for various applications, data centre solutions, gaming products, professional visualization, and automotive solutions, particularly for autonomous driving technology. This multifaceted approach has positioned the business as a key player in tech sectors driving innovation and advancements in computing.

“Between them, Microsoft, Meta, Google, and Amazon spent over $10 billion on Nvidia’s H100 chips in 2023. This was a key driver of their tripling revenue last year and their share price has consequently skyrocketed over the past 18 months. Since forming a bottom in the market back in October 2022, shares have risen nearly 600%. However, it hasn’t always been plain sailing. From November 2021 to the low we saw in October the following year, shares dropped by nearly 70%.

So why has its share price exploded and for those yet to participate, is it too late?

“Nvidia’s recent success can be attributed to its strategic positioning within the burgeoning AI market, aligning with one of the most influential megatrends projected over the next two decades. With the total addressable market for AI-powered products and solutions expected to soar from $241 billion in 2023 to an estimated $738 billion by 2030, Nvidia’s focus on designing and supplying AI chips has proven exceptionally timely.

“The last 15 months have witnessed a remarkable surge in demand for AI chips, reflected in Nvidia’s robust financial performance, reporting sales of $45 billion, a substantial increase from $26 billion in fiscal 2023. The International Energy Agency’s projection that data center energy consumption will double in the next three years further underscores the escalating need for the infrastructure required to build AI products at scale.

“It is also worth noting that Nvidia’s asset-light model has contributed to an impressive free cash flow of $17 billion over the last four quarters, surpassing its semiconductor rival Advanced Micro Devices (AMD), which reported a free cash flow of $1 billion. Also, as of 2023, Nvidia holds approximately 80% of the global market share in GPU semiconductor chips as of 2023. Right now, people are believing the hype and the numbers are backing it all up.

“With all this all in mind, many armchair investors out there will be asking themselves – is it too late to join the party? Part of the answer lies in market timing. If there’s a dip in the market, presenting an opportunity to enter at a lower price point, it could be an advantageous moment to buy in. The company’s commitment to research and development, coupled with its strong financial position and comparatively low valuation, at 33x forward earnings estimates, suggests that there might still be room for growth. As the AI market continues to expand, Nvidia’s leadership position and strategic investments make it a stock worth considering, especially if the market provides an entry point at a more favourable price.”

Sam North is a Market Analyst at eToro