AI just catapulted Nvidia into the $3 trillion club at lightning pace

• Nvidia just joined the $3 trillion club, joining Microsoft and Apple.
• Jensen Huang has the AI boom to thank for that.

Last year, Jensen Huang sent a simple message to graduates seeking sage advice from the chip billionaire. Whatever they wanted to pursue in life, they had to run for it: "Run. Don't walk."

It's a message that Nvidia believers appear to have lapped up, too.

Investors in a desperate rush for a share of Nvidia's growing AI riches helped the Santa Clara, California, chip giant surge past Apple to a $3 trillion market capitalization for the first time on Wednesday.

It's now the world's second-most-valuable company, placing it in a club of $3 trillion titans that has just two other members: Microsoft and Apple. What's truly remarkable is the pace at which Nvidia got there.

It took Apple almost three years to go from a $2 trillion market cap to a $3 trillion one. Microsoft accomplished the feat in January, about 2 ½ years after hitting $2 trillion in June 2021. But for Nvidia, the trip took a little more than three months.

The growth story appears to have a simple explanation.

Investors have become increasingly certain that Nvidia's graphics processing units are the lifeblood of the generative-AI boom, with large language models from the likes of OpenAI, Meta, and Google dependent on the chips.

Chips — and software

In May, Huang offered the latest sign of how dependent Silicon Valley's most mighty AI companies are on his chips after reporting a massive 262% year-on-year rise in revenue for the first quarter of 2024 to $26 billion.

Nvidia has benefited from its software, too, with its CUDA program serving as a plug-and-play system for developers seeking to use Nvidia GPUs for various complex AI tasks and training.

Critically, Nvidia's entry into the $3 trillion club shows just how much hope is being placed into AI.

Last month, Huang indicated that Nvidia would shift from a two-year release cycle for new chips to a "one-year rhythm" to deliver more-powerful hardware to desperate companies faster as they seek to push out ever-smarter AI models.

Microsoft has become the world's most valuable company on the back of hope in AI. It has made strategic investments in the technology, such as with OpenAI, under the leadership of Satya Nadella.

Challenges ahead

Meanwhile, Apple is preparing to make its next phase all about AI as it prepares to unveil a partnership with the ChatGPT maker at its Worldwide Developers Conference event next week.

What isn't clear is just how long AI can keep fueling this lighting growth. While Nvidia enjoys a nearly unstoppable surge for now, it faces some challenges with competitors trying to come up with an alternative to its CUDA secret sauce, for example — and with geopolitical complexities around China making its dependence on Taiwan for manufacturing a risk.

Microsoft and Apple both face risks, too, by betting heavily on large language models, a type of AI that has shown itself to be prone to errors.

For now, though, AI is accelerating the growth of companies all in on AI — and a $4 trillion valuation could be Nvidia's next stop.