Nvidia has soared to new highs on the stock market in recent weeks, driven by optimism about the future of artificial intelligence (AI).
The chipmaker, a leading maker of graphics processing units (GPUs) often used in artificial intelligence, closed above $2 trillion for the first time on Friday, becoming Wall Street’s third most valuable company behind Microsoft and Apple.
With the wide “moat” Nvidia has built through years of investment and development of its own widely used software ecosystem, rivals are unlikely to close that gap anytime soon, experts say.
“I think this is a game Nvidia is going to lose, and they’re not showing any signs right now that they’re going to lose this,” Stacy Rasgon, senior analyst at Bernstein Research, told The Hill.
Nvidia has been developing GPUs for decades. Tianqi Chen, an assistant professor in Carnegie Mellon’s Department of Machine Learning, said the chips were used primarily for video games until a discovery a decade ago caused the machine learning community to start using GPUs.
Computer scientist Geoffrey Hinton, known as one of the “fathers” of artificial intelligence, found that GPUs were more efficient at the type of large-scale computing required for machine learning, leading to the beginning of the “deep learning revolution,” Chen said. aforementioned.
“The machine learning community has begun to embrace GPU computing,” Chen said. “As of today, almost all AI models running deep neural learning networks… many, even the majority, of them run on the GPU.”
Rasgon said that Nvidia noticed this development and started creating libraries for machine learning within the software ecosystem called CUDA.
While Nvidia has been focusing on improving its AI capabilities, its main rival 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 start investing in data center and GPU AI,” Rasgon said. “But by then Nvidia had a 10-year lead.”
“A lot of it comes down to this: They realized early on that this was going to be important. To achieve this goal, they began to devote resources to developing both hardware and software products. They had competitors who were not interested or unable to do so. “And they never lost their faith,” he added.
Nvidia’s broad lead in GPUs is supported by the existence of its own software ecosystem.
“Nvidia has taken the early lead in AI GPU hardware, but more importantly, it has developed Cuda, a proprietary software platform and tools that allow AI developers to build their models with Nvidia,” Morningstar equity strategist Brian Colello said in a recent report. “
“We believe 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 education.”
Rasgon noted that if a developer tried to switch to AMD or Intel parts, they would have to completely rewrite their code.
“This is a huge undertaking,” he said. “And time is money, right? I mean, you want to get these things to market as quickly as possible. “It’ll be a lot easier if you keep developing everything on Nvidia parts over the last 10 years and using them.”
Nvidia began to see its investment in GPUs pay off last year after the release of OpenAI’s popular ChatGPT tool sparked fierce competition among major tech companies to develop and release their own generative AI models.
The chipmaker reached a $1 trillion market cap for the first time in May 2023. Nvidia has continued its rise in recent months, with its shares up 77 percent since the beginning of the year.
Nvidia first surpassed the $2 trillion mark late last month after the company reported strong fourth-quarter results that beat expectations. It increased its market value by $277 billion in one day, briefly pushing it to over $2 trillion and breaking Wall Street’s record for the biggest one-day gain.
Nvidia’s shares rose once again last week, topping $2 trillion for the first time after Dell reported stronger-than-expected fourth-quarter results. According to Reuters, Dell uses Nvidia’s GPUs in its servers.
“Accelerated computing and generative AI have reached the tipping point. Demand is growing across companies, industries and nations around the world,” Nvidia founder and CEO Jensen Huang said in the company’s latest earnings report.
The company took a hit in China last year, with data center revenue in the region falling “significantly” after the Biden administration imposed restrictions on exports of advanced chips in late 2022.
Nvidia developed two new chips with reduced capabilities to get around the restrictions, but the administration discontinued those chips in October 2023, citing concerns that American technology could be used to strengthen the Chinese military.
The Santa Clara, Calif.-based company’s dominance appears largely unshakable, at least for now.
Other chipmakers like AMD and Intel are unlikely to get ahead of Nvidia, Rasgon said, and in-house options from companies like Google, Microsoft, Amazon and Meta could serve certain purposes but likely lack the flexibility that GPUs offer.
Chen suggested that it might be possible for alternative chips to gain some market share if companies invest heavily in the software component. However, he also said that he did not think Nvidia would lose its leadership position.
“Longer term, we expect tech giants to try to find second sources or in-house solutions to move away from Nvidia on AI, but more likely these efforts will chip away at Nvidia’s AI dominance, but not replace it.” Added Colello from Morningstar.
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