Who wants to be a Trillionaire?

The most exclusive club in the world briefly welcomed a new member last week.

Source: Reuters

As of 7:30 am EST on Monday June 5, 2023, there are five companies that have a market capitalization of greater than $1,000,000,000,000 or $1 trillion.¹

1. Apple: $2.8tn

2. Microsoft: $2.5tn

3. Saudi Aramco: $2.1tn

4. Alphabet (Google): $1.6tn

5. Amazon: $1.3tn

You no doubt have heard of these companies, and have likely used their products recently (you may even by using one of them right now to read this). Two other companies, Tesla and Meta (the company formerly known as Facebook) have been valued at over $1tn, but both have seen their star fall in recent years.²

For a brief moment on Tuesday May 30, 2023, Nvidia became the latest company to join the party (though it currently sits at a paltry $971.4bn). In a prototypical example of Wall Street valuing growth projections over results-in-hand, Nvidia’s first quarter was not all that impressive. Quarter-on-quarter revenue dropped 13% and while net income was up 26%, that is due more to a one-time write-off last year than any improvement in Nvidia’s cost structure.³

So why the burst of excitement on Wall Street? A few days earlier, Nvidia had announced that it anticipated sales for the three months ended July 31, 2023 to reach $11bn, exceeding analyst projections by more than 50%!

Morgan Stanley called Nvidia’s revenue projections “the largest dollar revenue upside in industry history…We simply have no historical precedent for the magnitude of this step function.” Jeffries’ analysts project Nvidia’s quarterly revenue in it’s data center component (which made up ~60% of Q1 revenue) could exceed the combined sales of rivals Intel and AMD’s central processing units for the first time ever. Pure hysteria in the financial sector!

In response, Nvidia’s market cap grew by $184bn in one day. For some context, $184bn is greater than the market caps of Netflix, Disney, Nike and Wells Fargo, just to name a few. In one day, a company that the vast majority of the world had never heard of (and likely still hasn’t) grew by a Nike. That’s absurd!

Nvidia’s customers include the cream-of-the-crop; Microsoft, Amazon, Google, and Meta (amongst others). However, demand is not confined just to cloud and internet companies. Automotive, financial service, healthcare and telecom firms are all demanding Nvidia’s product. One of the largest advertising conglomerates in the world, WPP, recently announced a partnership with Nvidia to use Artificial Intelligence (AI) to design customized, targeted advertising campaigns that will take minutes instead of weeks. The Loss Prevention Research Council, a group that works with retail shops in the US, is partnering with tech companies like Nvidia to design tracking tags and other AI-powered surveillance systems to help combat the proliferation of post-covid petty theft in cities.

Clearly, Nvidia is in high demand across the landscape.

As you can see from the chart below, Nvidia’s performance over the past few weeks is absolutely astounding.

Nvidia market cap ($bn) (Jan-2016 - Present)

Source: Macrotrends

After falling last year due to concerns about a tech-spending slowdown following the pandemic binge and rising interest rates, Nvidia had seen a wave of enthusiasm after ChatGPT and Google’s Bard introduced large language models and the next generation of AI to the masses. Prior to this recent jump, Nvidia’s share price had already doubled in 2023

But why Nvidia? What makes it so special?