Why NVIDIA Corporation (NVDA) Is Skyrocketing

We are excited to delve into the reasons behind NVIDIA Corporation's (NVDA) remarkable stock price growth. As of December 26, 2024, NVIDIA's stock price stands at $140.22 USD, with a market capitalization of $3.43 trillion. The company's strong financial performance, strategic acquisitions, and innovative product offerings have contributed to its impressive stock price growth. Let's explore these factors in detail.

Financial Performance

NVIDIA's financial results have been nothing short of exceptional. In the third quarter of fiscal 2025, which ended on October 31, 2024, the company reported a 94% increase in revenue, reaching $35 billion. This growth was driven by a 112% increase in data center sales and a 72% increase in automotive and robotics sales. Non-GAAP earnings more than doubled to reach $0.81 per diluted share. Wall Street expects NVIDIA's adjusted earnings to increase by 50% in the next four quarters, making the current valuation of 52 times adjusted earnings look quite cheap.

Strategic Acquisitions and Partnerships

NVIDIA's strategic acquisitions and partnerships have played a significant role in its recent success. Some key examples include:

1. Melanox Acquisition (2019): NVIDIA acquired Mellanox Technologies, a leading supplier of InfiniBand and Ethernet networking solutions, for $6.9 billion. This acquisition strengthened NVIDIA's position in high-performance computing and data center markets, as Mellanox's products are crucial for connecting GPUs and other components in AI data centers. This acquisition has helped NVIDIA maintain its dominance in AI accelerators, with market share exceeding 80%.
2. Arm Acquisition (2022): NVIDIA agreed to acquire Arm, a leading provider of CPU designs, for $40 billion. Although the acquisition is still pending regulatory approval, it would significantly expand NVIDIA's reach into the mobile and IoT markets. Arm's extensive ecosystem of partners and customers would provide NVIDIA with new opportunities to grow its business.
3. Partnerships with Hyperscale Customers: NVIDIA has formed strategic partnerships with major cloud service providers like Amazon Web Services, Microsoft Azure, and Google Cloud Platform. These partnerships have enabled NVIDIA to offer its GPUs and AI platforms as a service, making it easier for customers to access and utilize NVIDIA's technology. This has helped NVIDIA tap into the growing demand for AI and data center services.

Innovative Product Offerings

NVIDIA's continuous innovation in GPU architecture has been a significant driver of its growth and market leadership in AI and data center markets. The upcoming Blackwell chip, for instance, is expected to offer substantial improvements in AI training and inference tasks compared to its predecessor, the Hopper chip. According to NVIDIA, the Blackwell GPU can complete AI training tasks up to four times faster and AI inference tasks up to 30 times faster than the Hopper chip. This significant performance boost will enable NVIDIA to cater to the growing demand for AI workloads in data centers and other industries.

Vertical Integration and CUDA Platform

NVIDIA's vertical integration of hardware and software, particularly its CUDA platform, maintains its competitive edge in AI and data center markets. The CUDA platform, launched almost two decades ago, includes hundreds of code libraries and pretrained models that streamline application development across various disciplines, from robotics to drug discovery. This extensive software expertise, combined with NVIDIA's market-leading GPUs, makes it challenging for competitors to dethrone NVIDIA as the leader in AI accelerators. NVIDIA's vertical integration strategy enables it to provide a full-stack solution that caters to the diverse needs of its customers in the AI and data center markets.

Strategic Partnerships with Major Tech Companies and Cloud Service Providers

NVIDIA's strategic partnerships with major tech companies and cloud service providers have been instrumental in driving its growth and market dominance in the AI and data center sectors. Some specific examples include:

1. Partnership with Microsoft: NVIDIA's GPUs are used in Microsoft's Azure cloud platform, which is one of the leading cloud service providers. This partnership allows NVIDIA to tap into Microsoft's vast customer base and offer its AI and data center solutions to a wide range of businesses. In the recent fiscal 2025 third quarter, NVIDIA's data center revenue grew by 112%, driven by strong sales in this segment.
2. Partnership with Google: NVIDIA's GPUs are also used in Google's data centers, powering its search engine, YouTube, and other services. Google is another major cloud service provider, and its partnership with NVIDIA helps the company maintain its market dominance in AI and data center solutions. In the third quarter of 2024, Google's revenue increased by 15%, with operating margin expanding by 4 percentage points.
3. Partnership with Meta Platforms (Facebook): NVIDIA's GPUs are used in Meta Platforms' data centers to power its social media platforms, including Facebook, Instagram, and WhatsApp. This partnership helps NVIDIA maintain its market share in AI and data center solutions, as Meta Platforms is one of the largest tech companies in the world. In the recent fiscal 2024 third quarter, AMD reported that its data center revenue soared by 122% year over year, with GPU sales leading the growth.

Conclusion

NVIDIA Corporation's (NVDA) remarkable stock price growth can be attributed to its strong financial performance, strategic acquisitions, innovative product offerings, vertical integration, and strategic partnerships with major tech companies and cloud service providers. As NVIDIA continues to innovate and expand its reach, investors can expect the company to maintain its competitive edge in the AI and data center markets. With a market value of $3.43 trillion, NVIDIA is well on its way to becoming one of the most valuable publicly traded companies in the world.