If you are following the world of IT, you may have noticed that for the past year or so, the industry has been going through a lot of major changes. One of the new, very bright, stars in the IT night sky is Nvidia. In fact, it has grown to not just “one of the many” bright stars, but it has become THE star.
Over the past year Nvidia’s market stock has skyrocketed from about $40 to over $135. And it seems like it’s just getting started. In fact, around June 20th, Nvidia officially overtook Microsoft to become the world’s most valuable company with a market cap of over $3.34 trillion. Depending on who you talk with, Nvidia’s stock is either “extremely overbought” or “just getting started.”
We can’t know who is right and we aren’t financial advisors, but what is clear is that the AI frenzy is in its infancy, and it has a long road ahead. We are just at the start of the AI (r)evolution which has already transformed several segments of the IT industry. The main one at the moment is the data center. Over the past year or so, the data center has been going through a major shift in focus. The cloud, crypto and other main uses of data centers are still around but are no longer the driving factors for big growth in usage and new builds. Instead, everything is about AI.
“The generative AI journey is really transforming businesses and telcos around the world. We are just at the beginning,” says Chirs Penrose, global head of business development for telco at Nvidia during an event in Copenhagen, quoted by the BBC.
“We believe over the next year the race to $4 trillion market cap in tech will be front and centre between Nvidia, Apple, and Microsoft,” add the analysts from Wedbush Securities. And Nvidia will probably be the one name that will lead the pack for a while.
It seems somewhat surprising. Nvidia was never really “an IT giant” the way Microsoft, Apple, Meta, and Google are viewed as. Nvidia was always the “geeky” company making video cards for gamers and crypto miners. But all this time Nvidia was working hard on several major fronts. Among them was robotics, AI, and data center hardware. Nvidia’s CEO and founder Jensen Huang had a vision and stuck to it and this effort paid off massively.
How it all started?
Nvidia was founded in 1993 in the USA and since its incorporation it has been envisioned to work in graphic processing and accelerated computing. “We also observed that video games were simultaneously one of the most computationally challenging problems and would have incredibly high sales volume. Those two conditions don’t happen very often. Video games was our killer app—a flywheel to reach large markets funding huge R&D to solve massive computational problems,” says Huang in an interview with Fortune in 2017, reflecting on how Nvidia was started.
During the 90s, graphic processing for videogames was the “big thing” at the time. There were more than 70 companies competing in the area. Only Nvidia and ATI survived the 90s, and today only Nvidia stands firmly independent, while ATI was bought by AMD.
Another interesting sidenote: Nvidia’s name. For a long time, it was written nVidia. During the past few years, the company rebranded to the more readable Nvidia. What does it mean? Well, initially, the company was founded without a name. The co-founders simply named their files NV for “Next Version”. When it was time to actually incorporate the company, the founders explored all words that feature NV as the first two letters. One of the first choices was NVision, but the name was taken by a… toilet paper manufacturer. So, eventually Huang suggested Nvidia, inspired by the Latin word “invidia” which means “envy”. And today a lot of people are indeed very envious of Nvidia.
Difficult first steps
But before the people of today were envious of Nvidia, the first years for the company were a bit of a challenge. It had a tough start, because it focused on a different processing software for its first graphics accelerator chip – the NV1. And Microsoft at the time, already a huge name with big influence, went another way. So, Nvidia was seemingly cast aside and had to make a choice – to continue making an inferior chip with limited capabilities or give up.
There was actually secret option number three: keep going. Nvidia got a much-needed investment from Sega, despite losing its contract with the company. Sega’s investment of $5 million saved the company and gave Nvidia the six months it needed.
In 1996 Huang had to lay off more than half of Nvidia’s employees and in August 1997 introduced its new graphics accelerator – RIVA 128. This product was more successful, and the company sold 1 million units in four months. This allowed it to continue developing more products and in January 1999 the company went public and in late 1999 it introduced the first GeForce GPU – GeForce 256. In 2000 Sega sold its Nvidia stock for $15 million, making a sizeable profit.
The GeForce chips secured massive success and they were performing better than the competition. Thus, Microsoft chose Nvidia for the first Xbox gaming console. In the early 2000s, Nvidia was no longer the odd one out; they were now a top player in the GPU market.
The “secret plan”
In the mid 2000s Nvidia was already starting to explore more options than simply being a maker of GPUs for video cards. The company tried its hand at ARM systems for mobile devices. Those projects didn’t really pan out. But it was clear that Nvidia didn’t want to rely only on GPUs for its future and aimed to be a much bigger company, providing a lot more diverse set of chips for different uses.
In 2017 Nvidia and Toyota started a joint project to develop an AI platform for autonomous cars. And in the same year, Nvidia and Baidu started working on a broad AI partnership for multiple AI uses, including cloud computing.
At the time those projects seemed exotic and far-fetching. But they were the actual bet of the company for its future. Huang and his team were convinced they were going to lead the IT world into the AI era.
Welcome to the new king
In the mid and late 2010s, the IT world was overtaken by the crypto craze. Once crypto miners realized that GPUs were great for mining, they flocked to AMD and (mostly) Nvidia’s graphics cards. This brought billions of dollars of revenue for Nvidia, but the company wasn’t happy. The reason being that crypto miners bought all available stock and there were‘t any cards left for the general market. In a somewhat surprising set of moves, Nvidia said it would limit the computing capabilities of some chips for crypto and it would limit the sales for crypto mining as it wanted to stay loyal to its original customer base of PC manufactures and enthusiasts.
That honorable move was well accepted in the IT community but was confusing to analysts and industry experts. It seemed that Nvidia was leaving money on the table. But the company had other plans. It wanted to create an entire new line of chips for supercomputers, data centers, and AI processing.
In March 2023, Nvidia launched the H100 GPU. It was its first GPU specifically developed for AI processing for data centers. The price was about $20,000 apiece. Тhe chips were so popular within the IT industry and among other IT giants and data center operators, they were in near constant shortage. Oracle’s founder Larry Ellison said that he, Elon Musk, and Huang had a dinner and were “begging” the Nvidia founder to help them secure H100 chips.
This worked out very well for the company. According to data from TechInsights, in 2023 Nvidia shipped 3.76 million data center GPUs. That’s more than 1 million extra units compared to 2022. Nvidia holds 98% of the market share in the data center GPU segment and it made 36.2 billion revenue from this segment. The only reason why it didn’t make more is the company simply couldn’t keep up with the demand.
In 2024 Nvidia introduced the newest H200 GPU. It’s said to be offering up to 45% more performance in some AI and HPC (High Performance Computing) tasks. And it’s even more expensive. Despite that it’s also highly sought after. There are also rumors that Nvidia is developing ARM chips for Windows PCs, too. That’s another market which is now going heavily into AI with Microsoft’s new Copilot+ PC category.
But wait, there’s more
Nvidia is now slowly showing off the latest part of its strategy – joint projects. The company is joining forces with other IT heavyweights to create specific data center solutions. Just this year Nvidia announced several partnerships. One of them is with Cisco, making technologies to help enterprises deploy and manage secure AI infrastructure. Dell and Lenovo are also making joint data center projects with Nvidia.
And in June 2024, Nvidia and Hewlett Packard Enterprise (HPE) partnered to make Turnkey – a special AI data center solution. “Private cloud AI is ready to run out of the box,” said HPE CTO Fidelma Russo in a recent media briefing. “You plug it in. You connect it to the GreenLake cloud, and three clicks later… your data science and IT operations teams are up and running the Nvidia software stack.”
“Everybody is developing solutions with Nvidia. They have no choice. Several vendors develop solutions with other GPU and accelerator vendors, but they say: ‘If we go to a customer, and don’t put Nvidia in front of them, they will walk away.’ There is a perception among end users in the market that AI equals Nvidia,” said Peter Rutten, a research vice president of IDC to Data Center Knowledge.
Nvidia has masterfully positioned itself as a key leader in the IT industry providing powerful hardware for AI processing right as the AI era is starting. “The next industrial revolution has begun. Companies and countries are partnering with NVIDIA to shift the trillion-dollar traditional data centers to accelerated computing and build a new type of data center — AI factories — to produce a new commodity: artificial intelligence. From server, networking and infrastructure manufacturers to software developers, the whole industry is gearing up for Blackwell to accelerate AI-powered innovation for every field,” says Huang during his keynote at Computex 2024. It’s clear Huang’s plan succeeded and Nvidia is now the king of the IT industry. And it seems it’s just getting started.