How Nvidia is capitalizing on generative AI hype bubble

Nvidia briefly became a member of the $1 trillion club, the stocks with a market cap of more than $1 trillion. It's all thanks to AI. But why? What does a chip company have to do with AI? Yahoo Finance's Dan Howley explains what gives Nvidia an edge.

Video transcript

BRAD SMITH: It's been a big year for NVIDIA as we've continued to track that stock over 170% in gains, is what we've seen year to date, plus strong earnings made it the first chip company to briefly boost its market cap over the trillion-dollar mark. But with the generative AI hype not showing any signs of slowing down, Nvidia may be the biggest winner of them all. Yahoo Finance's Dan Howley joins us now with the details. Dan, help us break this down even further. The company, Nvidia, they've been focused trillion-dollar club, entered, exited, but they're still in that ballpark.

DAN HOWLEY: Yeah, and let's just break down why Nvidia is in this position. The company that started decades ago, and really their focus was on video games at the time. But as they started to try to expand, they were looking for new ways to grow their market to take advantage of those graphics chips, and they opened it up to developers. And they basically found that, look, the kind of parallel processing that graphics processing units offer is infinitely better than central processing units, CPUs, at processing AI data. And so that's why we're seeing Nvidia really take off here.

The reason why they're beating the likes of AMD and others in this space, as far as processing goes, is because they recognize that early and they capitalized it by investing in it heavily. For years, they've been talking about how they're working on AI, how they have these servers, how they have the software. So they're a full stack company from soup to nuts, and they're the best to do it, and their products are in short supply, so people are really fighting over how to get their chips at this moment. We're not talking about small firms, either, we're talking about the likes of Microsoft, Google, Meta. They're all trying to get their hands on Nvidia's servers and chips, and so that's why this company really has taken off and why it's doing so well.

Now, obviously the generative AI hype has really played into that. But I think it's important to note that generative AI itself is very hyped, but it's not the end all, be all when it comes to AI. AI, as I've said, multiple times has been around for quite some time, companies have already been using it. That's why NVIDIA has been able to do so much work in AI.

It wasn't just generative AI that made Nvidia overnight a hit, they've been doing this for quite a while working in the AI space, improving their capabilities, releasing newer and newer servers and processors, scooping up companies to make the interconnects between different pieces of equipment talk to each other faster. So this is something that NVIDIA has been working on for a long, long time. Generative AI, right now, it definitely is the most talked about type of AI.

Look, it might not be the final iteration that we see of AI. In fact, it won't, there will be new versions of AI that do different things. This is a specific portion of AI. AI is a broad range of technologies, and Nvidia will continue to do well as far as overall AI goes.

Now, there are going to be rivals. AMD is working on things, Intel obviously working on things, Qualcomm coming out and saying that they're all about AI. You have Broadcom and Marvell, they're all working on their own technologies, whether that's with third parties like Google producing their own chips or not. For now, though, Nvidia really is riding this hype train, and they're the conductor.

JULIE HYMAN: I like that analogy, Dan. Thank you so much. Appreciate it.