Nvidia: Capturing investor attention

International share markets have surged in 2024, building on last year’s momentum and propelling many to record highs. The US market, in particular, has experienced one of the strongest starts on record, with the S&P 500 Index climbing 15.3%. While returns in the March quarter benefited various countries and sectors, the gains in the June quarter were primarily driven by a handful of mega-cap technology companies. Notably, over 60% of these gains came from just six companies (Nvidia, Amazon, Microsoft, Meta, Alphabet, and Apple), all of which have thrived amid the current enthusiasm for the economic potential of artificial intelligence (AI). Together, these six companies now constitute over 25% of the S&P 500 Index.

Leading the charge in the AI megatrend is chipmaker Nvidia, whose shares soared 35% in the June quarter, bringing its year-to-date gains to nearly 150%. Nvidia is a cornerstone of the AI ecosystem, consistently reporting remarkable revenue growth driven by surging demand for its graphics processing units (GPUs). Originally designed for rendering graphics in video games, GPUs are specialised semiconductor chips now indispensable for tasks requiring intensive and high-speed computing power, such as training AI and machine learning models like ChaGPT. Nvidia dominates this addressable market, which it estimates to be worth around US$1 trillion.

Nvidia’s GPUs, complemented by its software offerings, are significantly more energy efficient than alternative technologies. This efficiency not only bolsters AI capabilities but also contributes to reducing carbon emissions. With a new product cycle on the horizon and increased spending by its customers, Nvidia is well-positioned for continued earnings growth. Further amplifying this trend, hyperscaler companies like Amazon, Alphabet, and Meta are investing heavily in support infrastructure, such as data centres, to meet the anticipated AI demand. Despite the sharp rise in its share price over the past 18 months — at one point in June, temporarily, Nvidia became the most valuable company in the world by market capitalisation — its earnings have risen even faster. This means, on some valuation measures, Nvidia’s shares are actually cheaper than three years ago.

Nvidia is currently a large overweight position in GQG Partners Global Equity but is also held by Ironbark Royal London Core Global Share and iShares International Equity Index strategies within the Partners Medium Term and Long Term Portfolios.