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Nvidia‘s (NASDAQ: NVDA) revenue and adjusted earnings per share (EPS) have grown at a torrid triple-digit percentage pace for three consecutive quarters. And investors should be able to count on the tech giant’s streak extending to four quarters. For the quarter that ends in late April, management guided for the company’s top and bottom lines to surge 234% and 396%, respectively, year over year.

Nvidia’s powerful financial results have propelled its stock to tremendous gains. In the fiscal first quarter of 2024, Nvidia stock rocketed 82.5%, making it the second-best performer on the S&P 500 index, and its long-term performance is even more impressive. (Super Micro Computer, a server specialist, was the index’s top performer in Q1.)

Nvidia’s AI chip dominance is the key catalyst for its stock’s amazing run

The primary catalyst behind Nvidia’s rapid business growth is incredibly strong demand for its chips and related products that accelerate the processing of artificial intelligence (AI) workloads in data centers. Graphics processing unit (GPU) chips have emerged as the best type of general chips for this purpose — and Nvidia is the leading maker of discrete GPUs. Discrete means the GPUs are distinct chips, as opposed to being integrated with a central processing unit (CPU) chip.

Estimates vary, but it’s widely projected that Nvidia has a roughly 90% share of the data center AI GPU chip market, and about an 80% share of the entire data center AI chip market. The latter includes the custom AI processing chips that some of the larger tech companies have developed.

Nvidia’s data center business was already growing at a robust rate over the long term before a new type of AI — generative AI — arrived on the tech scene. This occurred in late 2022 when OpenAI broadly released its ChatGPT chatbot. Generative AI opens up a massive range of potentially new applications for AI, so companies are eager to incorporate it into their businesses. This eagerness has lit a fire under Nvidia’s sales of its family of data center products.

Over 4.7 million reasons why Nvidia’s AI chip dominance should endure

It’s natural for investors to wonder if the other companies that make GPU chips — namely, Advanced Micro Devices and Intel — or companies that could enter this business will eventually catch up to or even surpass Nvidia in the AI GPU chip market.

Sure, competitors could gain some market share. That’s largely because Nvidia can’t keep up with the voracious demand for its data center GPUs and associated products. However, it will be nearly impossible for any company to steal Nvidia’s AI GPU chip crown, in my view. Moreover, it’s unlikely that a competitor will even get close to Nvidia’s market share in AI-enabling GPUs.


The company addressed this topic in its February annual 10-K filing with the Securities and Exchange Commission (SEC):

Our AI technology leadership is reinforced by our large and expanding ecosystem in a virtuous cycle. [Emphasis mine] Our computing platforms are available from virtually every major server maker and CSP [cloud service provider], as well as on our own AI supercomputers. There are over 4.7 million developers worldwide using CUDA and our other software tools to help deploy our technology in our target markets. [Emphasis mine. Yes, the number of developers is where the article’s heading comes from.]

CUDA is Nvidia’s programming model that enables its GPUs to possess the parallel processing capabilities needed for accelerating general and AI computing. Not only are a huge number of developers using CUDA, but many of them have been doing so for a long time, as Nvidia developed CUDA in 2006.

A virtuous circle (or cycle), according to the Merriam-Webster Dictionary, is “a chain of events in which one desirable occurrence leads to another which further promotes the first occurrence and so on…” In Nvidia’s case, this virtuous circle works in a similar way as I recently described it operating for Arm Holdings, the leading designer of CPU chips:

The more hardware built using Arm IP, the more software that’s written for Arm. And the more software that’s written for Arm, the more popular hardware based on its IP [intellectual property] becomes because that hardware has more or better applications and features. And so on and so on.

In short, Nvidia’s big head start in the AI GPU space has led to it benefitting from a virtuous circle. And this virtuous circle provides it with a tight grip on the AI GPU market.

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Beth McKenna has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.

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