NVIDIA and AI
1)Introduction
​
Nvidia, founded by Jensen Huang, Chris Malachowsky, and Curtis Priem, is today considered one of the most influential tech giants in the world. Since its inception in 1993, their journey to the apex of the industry has been fascinating and one that focuses on immense progress and advancements. For a long time, Nvidia was relatively unknown amongst the larger consumer base, primarily known by technology enthusiasts due to their high-performance graphics cards for computers. However, through significant changes and improvements across years of hard work, Nvidia has recently celebrated a revenue growth of 125.85%[1] in the 2024 fiscal year. This form of growth and financial performance has shown the grand impact the company has had in the market of artificial intelligence, accelerated computers and much more.
This commentary is an assessment and analysis of Nvidia in the past few years. Nvidia has seen a sudden surge in growth which is mainly explained by the company’s innovative and ambitious nature. Having its origins within computing, the company’s decisions such as the changes they made to their model will be discussed. This will help to understand the journey which Nvidia has taken and how they have been the catalyst to their leadership in the market and bizarre financial growth.[2]
​
2.1) Sources Used
​
In order to provide a multifaceted outlook of the unique situation at hand, a rich variety of sources were picked in order to ensure a holistic view point and also verify information along the way. This commentary effectively utilises financial reports, video recordings, interviews, articles from credible publications. This approach will help to collect information from a plethora of different perspectives, moulding into quality research after being processed.
2.2) Tools and theories employed
​
In order to analyse the growth Nvidia has seen in recent times, Multiple business managements tools and theories will be utilised. Firstly, A PEST analysis will be conducted in order to understand the changes and factors that influenced the large financial growth that Nvidia has witnessed. Secondly, Ansoff Matrix will be utilised to examine the decision of Nvidia to transition into artificial intelligence, machine learning and accelerated semi-conductors. This will help determine the viability of the decision and the risk involved. Lastly, a financial analysis will be conducted to understand the growth in financial performance and the impact that the innovation within the company has caused. This will include profitability ratios and increase in revenue.
​
​
3.1) PEST Analysis
​
The PEST analysis is a smaller acronym of a STEEPLE analysis and is used in the real world to understand the external forces that exist for a business and if they would create opportunities or threats for them. The PEST analysis covers Political factors, economic factors, social factors and technological.
Political factors- Taiwan Semiconductor Manufacturing Company Limited (TSMC), the world’s largest chip manufacturer, manufactures the GPU and AI chips sold by Nvidia. These two products account for a large majority of the revenue earned by Nvidia. Since TSMC is a Taiwanese company, the volatile relationship between China and the United States has been a constraint for Nvidia, being an American company. In 2020 and 2021, during the presidential run of the Trump administration, tensions had risen extremely high, causing overall trade problems between both the economies. However, since the takeover of the Biden administration, things have not escalated, and a “strategic competition[3]” approach has been taken. This de-escalation of this situation allowed for trade to continue and allowed TSMC to continue to supply to Nvidia, allowing them to grow further.
Economic factors- The Covid-19 pandemic was an irreplicable period where most large industries and companies faced supply shocks and unexpected losses. For Nvidia, a decline in net profit from $4,141 million USD to $2,796 million[4] USD was seen. This was a result of the economic downturn and recessionary effects placed on the global economy. Moreover, increased worker wages, maintenance costs and a lack of sales all had contributed to a substantial decline. However, at the same time, Nvidia were able to recover extremely quickly recording a revenue of $4,332 million[5] USD in 2022. This quick recovery can be attributed to the type of goods sold by Nvidia. Being heavily reliant on the digital platform and computing, they were able to keep operations functional and operate digitally, only facing a minor setback. Moreover, the demand for AI and GPU chips grew significantly. The market worth $17.3 billion soon became worth $53.7 billion, signifying increased sales for Nvidia who an established and dominant firm in the industry was already.
Social Factors- Moreover, the lifestyle changes that occurred due to the Covid-19 pandemic substantially increased the usage of technology by a normal consumer. Reportedly, the number of consumers using technology worldwide in 2020 were 4.58 billion, whereas by April of 2024, the market had grown to 5.44 billion[6]. The growth spike caused by the restraints of the pandemic caused increased consumer usage of computers, more time spent gaming, browsing Google Chrome, and using AI tools such as ChatGPT; all of which heavily utilise Nvidia’s products, creating a larger demand for their products.
Technological factors- Technological factors have been the blessing that Nvidia required to thrive as a company. Since 2022, events such as the introduction of ChatGPT [7]and a requirement for large amounts of data processing, Nvidia has been able to innovate chips that can provide exceptional data processing capabilities to the largest firms in the world and high-end graphic processing units (GPU) for the normal consumer. The rise of Artificial intelligence and its application in businesses and jobs has given Nvidia a golden platform to further expand and grow as a “tech giant”.
Limitations-
3.2)Ansoff Matrix
The Ansoff matrix is an analytical tool that helps managers to choose and devise various product and market growth strategies. The strategies used by Nvidia during 2023 was a synthesis of market penetration, market development, product development and diversification.
Firstly, Nvidia benefited through the timely use of market penetration strategies. As the demand and requirements for high performing data processing units and the involvement of artificial intelligence grew, Nvidia was able to provide the perfect solution. Graphics processing units from Nvidia were optimised for tasks such as machine learning and data analysis, tasks that companies such as Google and Microsoft heavily rely on, ordering 50,000 and 150,000 GPU units[8] respectively, highlighting the huge success that their product was in the supercomputing market. Nvidia previously sold these products to companies for solely data processing and analysis. However, since the boom in AI and its utility for companies, the popularity for Nvidia GPUs has soared.
Next, Nvidia utilised product development methods by the release of the next generation of 40 series graphics cards. The GeForce RTX 4090 and RTX 4080 were released on October 12th, 2022, and November 16th, 2022,[9] respectively. The development of these high-end consumer graphics card in an already existing market led to increased popularity, leading to a capture of 80% of the graphics card industry by the start of 2023. The launch of these products was a beneficial decision. Firstly, the high performing product further cement Nvidia’s name within the market, establishing them as a reliable and trustworthy producer. Moreover, the introduction of the RTX 40 series allowed for Nvidia to cater to a larger consumer audience. With a starting price of $1599, a niche consumer base was targeted, while the previously high end RTX 30 series all saw price reductions ranging from 14.2% to more than 25%.[10] This allowed a larger range of audiences to have access to Nvidia products, increasing overall sales from $3420 million to $3620 million from Q4 of 2022 to Q1 of 2023.[11] Despite the high risk usually involved in strategies such as product development, this was considered a safe decision as Nvidia had already understood the market well and were able to implement the required changes in their new product.
Moreover, Nvidia also implemented several diversification strategies, evolving its services to be useful in fields such as quantum computing and healthcare. In July of 2022, the company announced CUDA-Q, a quantum computing platform[12]. Countries such as Japan, Germany and Poland [13]now use their platforms and chips for their supercomputers, signifying the leadership and control help by Nvidia in a relatively new market. Furthermore, Nvidia truly enhanced ‘Nvidia Clara’, an AI software used to find solutions for health problems. Adding new features such as genomic analysis, medical imaging, robotic surgery and drug discovery, gaining widespread interest of the healthcare sector and becoming a pioneer of this unique field.
Limitations
3.3) Financial Analysis
​
A financial analysis will help uncover the true impact of the change Nvidia made towards focusing on AI and other GPU technologies.
3.3.1) profitability ratios
A financial analysis tool which businesses use to interpret their financial statements is called ratio analysis. It can be used to find both the profitability and efficiency of the business.
The gross profit margin and net profit margin saw considerable progress since 2017. The gross profit margin saw a considerable increase to 66.1%, starting from 58.8%. 2023 saw a decrease in gross profit margin after a constant increase in the past 5 years. In 2023 and 2024, Nvidia recorded cost of sales of $11,618 million USD and $16,621 million USD[16] respectively, never exceeding the $10000 million USD mark in their history. Despite an increase in sales revenue from $26914 million USD in 2022 to $26974 million USD in 2023, Nvidia still achieved a lower net profit. These increased costs are mainly attributed to additional investments and costs incurred by the firm. These additional costs include partnership with MediaTek[17], based on AI run automobiles; Nvidia Drive Orin[18], a new car software system being implemented into various car models; Nvidia Clara[19], the expert healthcare AI; and Nvidia AI enterprise[20], which provide a suite of tools and frameworks for enterprises to develop and deploy AI applications. These projects allowed Nvidia to not only diversify their product portfolio, build greater demand for their goods and services in a wide range of industries. Lastly, economic factors such as increase in the resource prices may have also played a role in the increase of costs in 2023 as Artificial Intelligence and data processing becomes an increasingly competitive industry.
3.3.2) Share growth
Earnings per share (EPS) growth (in cents from 2017-2024)[21]
​
Due to the fast-paced growth of the company, the value of its stock skyrocketed, so did the value and profit perceive by investors. From a mere $0.17 USD earning per share, Nvidia strategic investment into now popular sector helped boost the earning per share to $1.71 by the start of the 2024 financial year. The increase in demand and value for artificial intelligence and its applications made Nvidia an extremely promising company to invest in, holding immense potential to yield high returns.
Acknowldge that no everything could be done and limitations overall
4)Conclusion
​
The analysis of the financial growth of Nvidia in the last 6 years using the PEST analysis, Ansoff matrix and financial analysis provided an insight into the changes in investment and development that caused the growth achieved by the company.
The PEST analysis discovered political, economic, social and technological factors that influenced the changes Nvidia made within the company and external factors that aided or worked against the company during its period of growth.
Furthermore, the Ansoff matrix analysed the decision made by Nvidia to develop new products to cater to an existing market. Introducing new products into the same market helped increase their credibility as a company and also helped to put their product on the front line in a highly competitive and large industry.
Lastly, the financial analysis helped assess the true impacts the changes that Nvidia has made have had on their overall growth. Discussing gross profit margin, net profit margin and earning per share, a clear relation was established between the company’s decisions and the growth that followed.
Overall, it is safe to conclude that Nvidia’s decisions to change their investment to invest in artificial intelligence was an extremely beneficial one. The transition to being the backbone for some of the most valuable companies in the world in terms of data processing and the implementation of AI has been a catalyst for a future where the importance of a company such Nvidia will be paramount. Such as change has helped Nvidia climb to the very top of the business world, cementing their name as one of the most innovative and influential companies in the world.
​
Writers: Parth Goel, Nakshatra Gupta
​