Nvidia becomes world's most valuable company, surpassing Microsoft

Nvidia became the world's most valuable company on Tuesday, surpassing Microsoft due to the high demand for its processors, which are crucial in the race to dominate artificial intelligence technology.

Shares of Nvidia rose 3.5 per cent to £106.71, pushing its market capitalisation to £2.625 trillion. This rise occurred just days after it overtook Apple to become the second most valuable company. Microsoft's market value stood at £2.611 trillion as its shares fell 0.45 per cent. Apple's stock dropped over 1 per cent, leaving its value at £2.588 trillion.

Nvidia's market value surge over the past year reflects a Wall Street trend driven by optimism about AI technology. While Nvidia's rally has boosted the S&P 500 and Nasdaq to record highs, some investors are concerned that enthusiasm for AI may decline if there are signs of reduced spending on the technology.

"It's Nvidia's market; we're all just trading in it," said Steve Sosnick, chief market strategist at Interactive Brokers.

Nvidia has become the most traded company on Wall Street, with daily turnover recently averaging £39.37 billion, compared to around £7.87 billion each for Apple, Microsoft, and Tesla, according to LSEG data. Nvidia now represents about 16 per cent of all trading in S&P 500 companies.

Nvidia's stock has nearly tripled this year, compared to about a 19 per cent rise in Microsoft shares, driven by strong demand for its top-of-the-line processors. Tech giants Microsoft, Meta Platforms, and Google-owner Alphabet are competing to enhance their AI computing capabilities and incorporate the technology into their products and services.

The high demand for Nvidia's AI processors, considered superior to competitors' products, has resulted in tight supply, with many investors seeing Nvidia as the primary beneficiary of the AI boom.

"Nvidia has been getting a lot of positive attention and has been doing a lot of things very correctly, but a small misstep is likely to cause a major correction in the stock, and investors should be careful," said Oliver Pursche, senior vice president at Wealthspire Advisors in New York.

Tuesday's gain pushed Nvidia's stock to a record high, adding over £86.61 billion to its market capitalisation, equivalent to the entire value of Lockheed Martin. Nvidia's market value grew from £787 billion to £1.575 trillion in nine months in February and took just over three months to reach £2.362 trillion in June.

Since its optimistic forecast about a year ago, Nvidia has consistently exceeded Wall Street's expectations for revenue and profit, with demand for its graphics processors far outstripping supply as companies rush to integrate AI applications.

Nvidia executives said in May that demand for its Blackwell AI chips could exceed supply "well into next year."

Sharp increases in analysts' expectations for Nvidia's future earnings have outpaced its stock gains, resulting in a lower earnings valuation. Nvidia recently traded at 44 times expected earnings, down from over 84 about a year ago, LSEG data showed.

To increase the appeal of its stock among individual investors, Nvidia recently split its stock 10-for-one.

(Reuters)