NVIDIA has joined Alphabet (GOOG), Apple (AAPL), and Microsoft (MSFT) in the trillion dollar club. NVIDIA (NVDA) achieved a $1 trillion market capitalization on 30 May 2023.
NVIDIA’s stock price will have to stay over $404.86 to keep the trillion-dollar value, CNBC reports. Thus, NVIDIA is close to regaining $1 trillion status because Mr. Market was paying $391.71 for its shares on 5 June 2023.
NVIDIA’s growth has been astronomical. The Market Capitalization grew from $466.4 billion on 3 June 2022 to $971.38 billion on 3 June 2023. Hence, NVIDIA’s market capitalization grew by $504.98 billion, over 50%, in a year. Comparatively, NVIDIA’s share price grew from $187.20 on 3 June 2022 to $391.71 on 5 June 2023.
AI Fuels NVIDIA’s Explosive Growth
So what explains NVIDIA’s explosive growth? Why is this chipmaker surging as news reports describe a Silicon Valley in free fall?
Many observers credit the popularity of generative artificial intelligence (AI), such as ChatGPT, for NVIDIA’s surge. To explain NVIDIA’s primary product is graphics processor units (GPUs). Generative AI, such as ChatGPT and Bard, runs on GPUS. Moreover, NVIDIA (NVDA) is a leader in the standalone GPU field.
NVIDIA is going all in on generative AI with several initiatives. For example, NVIDIA AI Foundations of set of cloud services that support enterprise level generative AI. The AI Foundations include NVIDIA NeMo which supports text, NVIDIA Picasso creates visual content, and NVIDIA BioNeMo provides AI for biology and medicine.
The Trillion Dollar Cloud
Hence, they could use AI Foundations and the NVIDIA DGX Cloud to write articles, generate art, create games, make movies and TV shows, animate movies, and create drugs and medical treatments.
They claim you can use BioNeMo to build “AI drug discovery pipelines.” NVIDIA cloud application programming interfaces (APIs), allow researchers to access the DGX Cloud.
Hence, NVIDIA is becoming a cloud and AI company. Notably, three other trillion dollar tech companies are cloud companies.
Amazon (AMZN) owns the cloud leader Amazon Web Services AWS, which had 33% of the global cloud market in the first quarter of 2023. Microsoft (MSFT) had 24% of the global cloud market through Azure in the first quarter of 2023. Alphabet (GOOGL) 10% of the global cloud services market through Google Cloud. Statista estimates global cloud infrastructure revenue at $63 billion in the first quarter of 2023.
You can argue Apple (AAPL) is a cloud company because it offers cloud based solutions such as Apple Pay. NVIDIA is not one the seven largest cloud services providers, but it could soon that lucrative club because of AI.
NVIDIA DGX Cloud
Strangely, NVIDIA (NVDA) has less revenue and profit despite the trillion-dollar market cap.
For example, NVIDIA’s quarterly revenues fell from $4.288 billion on 30 April 2022 to $7.192 billion on 30 April 2023. Similarly, the quarterly gross profits fell from $5.431 billion on 30 April 2022 to $4.648 billion on 30 April 2023.
Conversely, the quarterly operating income rose from $1.868 billion on 30 April 2022 to $2.140 billion on 30 April 2023.
Impressively, NVIDIA is generating more cash. For example, the quarterly operating cash flow rose from$1.731 billion on 30 April 2022 to $2.911 billion on 30 April 2023. Similarly, the quarterly ending cash flow rose from $3.887 billion on 30 April 2022 to $5.079 billion on 30 April 2023.
In contrast, NVIDIA’s cash and short-term investments fell from $20.338 billion on 30 April 2022 to $15.320 billion on 30 April 2023. However, the cash and short-term investments grew from $13.296 billion on 31 January, 2023.
NVIDIA has less debt. Its total debt fell from $10.947 billion on 30 April 2022 to $9.704 billion on 30 April 2023. The total debt rose to $11.129 billion on 31 January 2023. Yet, NVIDIA is paying less debt because the quarterly financing cash flow fell from -$2.446 billion on 30 April 2022 to -$380 million on 30 April 2023.
What Value Does NVIDIA (NVDA) offer?
Many people will wonder if NVIDIA (NASDAQ: NVDA) is overvalued, because it makes less money as its market cap explodes. Cynics will also note that the global cloud infrastructure revenue was $63 billion in the first quarter of 2023, far short of the $1 trillion.
I think NVIDIA is a little overvalued at $391.71, however it has enormous potential for more income. In particular, I think we are only scratching the surface of AI and AI cloud services. Unfortunately, nobody knows what the limits of that market are but I think it will be vast.
However, NVIDIA has attractive features, including a dividend. NVIDIA has scheduled nine 4₵ quarterly dividends between 30 June 2023 and 1 July 2025. Overall, NVIDIA shares offered a 16₵ forward dividend, a 0.041% forward dividend yield on 5 June 2023. I think this is too low given NVIDIA’s cash. However, I think NVIDIA has the potential to be a tremendous dividend stock someday.
If you like cash and growth, NVIDIA is a stock to investigate. Although I think Mr. Market overprices it.
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