Nvidia becomes first $1 trillion chip maker – but investors beware

Microchip manufacturer Nvidia recently became the first company of its kind to reach a market cap of $1 trillion, joining the likes of Apple, Microsoft, Alphabet, and Amazon.

Vestact portfolio manager Byron Lotter told The Money Show that Nvidia recently became Vestact’s second biggest holding.

The company saw its stock price grow over 30% over the past month, jumping from a share price of around $289 to over $400. Currently, the company is boasting a share price of around $397.

Nvidia was founded in 1993, but its recent success is largely attributable to the company having tapped into the AI market.

“When you look at the recent tech fads that have come through, like cryptocurrencies, NFTs, even the metaverse, it’s quite hard to really understand how those will be big,” said Lotter.

“But when it comes to AI, it’s incredibly productive, incredibly helpful and useful for everyday life.”

While Lotter admitted that “we might be seeing a little bit of a bubble here”, he said there is certainly going to be a proper use for AI in the future.

What sets Nvidia apart from other businesses tapping into the market lies in its chip manufacturing process.

A Holland-based business called ASML manufactures the machinery that manufactures the chips. Then, Taiwan Semiconductors purchases this machinery and manufactures the chips for Nvidia. Following this process, Nvidia creates the intellectual property.

According to Lotter, the intellectual property that Nvidia has created over the years is at least two or three years ahead of anyone else in this space, and therein lies its recent success.

This is because companies like Microsoft and Amazon, which are building data centres worldwide, use Nvidia chips to process all that data.

“Now, when it comes to AI, data processing is becoming even more complex, and the speed of that data processing is required to be a lot higher,” he said. “And Nvidia, again, is at the forefront of that technology.”

However, Lotter cautioned that investors interested in Nvidia should remember that it is placed in a very cyclical industry.

There have been several runs on the company, followed by a crash in the past few years. 

During the Bitcoin Rush in 2018, when Bitcoin hit $10,000 a share for the first time, Nvidia rallied because crypto miners were buying chips.

However, Nvidia then produced too many chips and was stuck with too much inventory.

A similar situation happened during the Covid-19 pandemic. Lockdowns across the world led to more people gaming, which required gaming chips.

This, again, led to Nvidia rallying, and the company could not keep up with the demand.

However, when lockdown restrictions were lifted, interest in gaming dwindled, and Nvidia was again stuck with too much inventory. This saw the company’s share price drop from $300 to $100.

Lotter, therefore, warned investors that they need to have a strong stomach to be a shareholder in this company.