Moneycontrol Pro Panorama | The force called Nvidia in artificial intelligence

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

Shares of the world leader in artificial intelligence (AI), computing company Nvidia, stumped investors as it zoomed past the $1,000 mark on Wednesday, following its Q1 2025 results (fiscal year begins January 29). The advanced computing chip maker is now the world’s third largest company by market capitalisation (approximately $2.3 trillion), after Microsoft ($3.2 trillion) and Apple ($3 trillion). That too, a meteoric rise from $144 billion in end-2019!

To be sure, its stock performance is backed by the company’s eye-popping performance, as its chips form the bedrock of the AI revolution. With 86 per cent of its sales accruing from cloud computing data centres and mega customers in the segment such as Meta, Amazon and Microsoft comprising nearly half its data centre revenue, the results that Nvidia turns out quarter-after-quarter are not surprising. In addition to beating market expectations in its revenue and earnings growth in Q1, the firm announced a stock split in the ratio of 10 shares for every 1 held.

As Nvidia continues to fuel the AI revolution with its chips, the management fuelled its stock price by raising guidance for the quarters ahead. Fierce competition between the mega technology companies for building data centres and garnering market share will keep demand for Nvidia chips very strong for the next several quarters, says Aaron Chaze in this article. Estimates suggest that the AI market is likely to grow at a CAGR of about 28.5 percent from around $184 billion in 2024 to $826 billion by 2030! 

The question is: Will the stock price rally continue? Are valuations of concern? Its price earnings multiple on earnings expected over the next 12 months (forward PE) is around 38x, which is below its 5-year average forward PE of 46x and close to the sector average of 33x, says Chaze in his article.

Do Indian investors have the privilege of riding this “workhorse”? Sure. There are mutual funds that placed some bets (ranging from 1-5 percent of net assets) on this block buster stock. A word of caution, however, for retail investors before following the herd. As has been the case in any new product innovation or trend, competition does catch up sooner than later. Mind you, the shifts in technology, the rise and fall of sectors and companies is faster than ever before in today’s world of AI.

Indeed, demand from data centres will surge. But the battle too is likely to get fierce as more companies, new and existing IT companies, enter the fray. There could be a risk from moderation in growth rate as other firms share the growing AI pie. Investors could do well by brushing their memory over past instances such as rise and fall of dotcom firms and more recently, the shakeout in new-age companies in fintech and edtech.

In another AI-related article, Prosenjit Datta highlights some of the perils of the GenAI industry, that is actively talking about Responsible and Ethical AI and the need to prevent misuse of their products and services.

Investing insights from our research team