Nvidia’s market cap crossed $3Tn in June 2024 joining the league of Apple and Microsoft. It is 10 times the market cap from December 2020.
What does Nvidia do?
It is imperative to know what Nvidia does before delving into the reasons why its market cap has risen so quickly in the past few months.
Fab vs fabless
On a high level, the semiconductor industry can be divided into two types based on their work – fabs and fabless companies.
Fabs are the companies that have the manufacturing facilities that actually produce the semiconductor chips. These manufacturing facilities are highly expensive to set up and maintain. With the demand for chips increasing they have to keep up with the latest advancements in manufacturing technology as well. They have to keep working at nearly full capacity always to make them sustainable.
The fab companies generally depend upon the orders given by fabless companies to manufacture the products. An example of a fab company is Taiwan Semiconductor Manufacturing Company (TSMC). Fabs companies are essentially the backend for the actual products.
Fabless companies are the ones who design the chips and they depend on the fab companies to manufacture them. They focus on creating intellectual properties and distribution rather than manufacturing it. These companies are the brains behind the chip. They decide the design of the chip.
The fabless companies outsource the manufacturing to the fab companies and work on contracts with them. Nvidia is a fabless type of semiconductor company.
Nvidia designs and supplies the graphics processing units (GPUs), that are required for high-end computing. They are used in a variety of devices that are used for varied applications like research, engineering, construction, gaming, and medicine to name a few.
Reasons
Rise in demand for Generative AI
Generative AI has been taken across industries since 2023. More and more companies are being created based on generative AI. Diverse industries from entertainment to manufacturing are adopting generative AI to make their businesses more efficient.
Nvidia GPUs are used to train the models by companies like OpenAI. With the increase in the usage of generative AI, the demand for Nvidia is only rising.
Demand for data centers and supercomputers
Tech companies are investing in supercomputers and data centers. The demand for data centers has risen post covid pandemic. Over the last few years, the demand for Nvidia’s most powerful and advanced computer chips necessary for artificial intelligence has boosted sales and profits. Google, Meta, Microsoft, Amazon, and OpenAI buy billions of dollars of Nvidia’s GPUs.
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