Moneycontrol Pro Panorama | Nvidia — the most valuable company, for a reason

Companies like Nvidia are reaping the benefits of the booming AI and data centre markets.

Nvidia has now become the most valuable company in the world, surpassing Microsoft. As of June 25, 2025, Nvidia's market capitalisation stood at $3.76 trillion while Microsoft's was at $3.66 trillion. This shift in ranking is significant and underscores the changing dynamics of the IT industry.

Artificial intelligence (AI) and its applications are increasingly taking precedence over traditional software. Given that AI relies on higher computing power, the chips that drive this technology must also be more powerful.

Sam Altman, CEO of OpenAI, mentioned in a blog post that a query to ChatGPT consumes approximately 0.34 watt hours — equivalent to the energy used by an oven in a little over one second or a high-efficiency lightbulb in a couple of minutes. Additionally, each query uses about 0.000085 gallons of water, which is roughly one-fifteenth of a teaspoon. While this may seem negligible, when considering the billions of queries hitting the system at any given moment, it becomes clear how immense the required computing power truly is.

Companies like Nvidia are reaping the benefits of the booming AI and data centre markets. Customers such as Microsoft are purchasing Nvidia's GPUs (Graphics Processing Units) as quickly as the company can produce them. While Microsoft's revenue grew by 8 percent in 2024 Nvidia's revenue soared by 114.2 percent.

Nvidia is currently experiencing what is commonly referred to in market terminology as a "supercycle". In contrast, Microsoft is in a more mature phase of its business cycle. Analysts expect the AI chip market to grow 10-fold over the next 10 years, potentially reaching a value of $300 billion.

Interestingly, the best is yet to come. The fact that the United States is regulating the supply of chips to Generative AI (GenAI) companies in China suggests that we will be entering a supply-constrained market. Nvidia, which reported a gross margin of 61 percent for the fiscal first quarter in May, plans to increase this margin to the mid-70 percent range in the upcoming quarters.

Nvidia has faced significant challenges this year, primarily due to US President Donald Trump's policies and reports of a Chinese company developing an AI engine that produces similar results at a much lower cost than other global generative AI competitors.

As a result of Trump's tariffs and the ban on sales to China, Nvidia's stock price dropped by 37 percent, falling to $94.21 in April. However, the company has since demonstrated strong performance despite setbacks in China, which has led to the stock price reaching new highs. Since its lowest close in April, Nvidia's market value has increased by approximately $1.42 trillion.

Analysts monitoring the company are raising their target price projections. The most optimistic recommendation comes from Ananda Baruah, an analyst at Loop Capital, who has increased his price target to $250, which is the highest among Wall Street analysts tracked by Yahoo Finance. At this price point, Nvidia's market capitalisation would reach $6 trillion, roughly equivalent to the total market cap of all stocks traded on the NSE.

Baruah said in his note, "While it may seem unrealistic that Nvidia's fundamentals can continue to improve from current levels, we want to remind everyone that Nvidia essentially holds a monopoly in critical technology, and it has significant pricing and margin power."

Analysts are optimistic about Nvidia's upcoming Blackwell artificial intelligence platform. Barclay's analysts anticipate that Nvidia's next-generation Blackwell Ultra chips will be launched later this year, along with an increase in Blackwell shipments, which could help Nvidia reach its margin target. With IT giants increasing their budgets to meet rising demand, this augurs well for chip makers like Nvidia.

Given the clear visibility of these trends, regardless of geopolitical events, it is no surprise that investors are flocking to this stock.

A resilient economy makes a resilient market (republished from the FT)

Technical Picks: DALBHARAT, GODFRYPHLP, HINDALCO.