NVIDIA was named in 1993 after the Latin word for envy. Sure enough, the American colossus inspires plenty of it. Insatiable global demand for its graphics-processing units (GPUs), the chips that power artificial intelligence, has made Nvidia the world’s most valuable company, worth $5.4trn. Next year it may also become the most profitable, generating $370bn in net income. By 2029 its sales could hit $1trn.
Jensen Huang, Nvidia’s boss, is truly the magician at the heart of the AI boom. His firm’s share price is 14 times what it was on ChatGPT’s release in late 2022. The ten biggest public companies championing AI make up 40% of the value of the S&P 500 index. Nvidia alone accounts for 8% and unlike, say, Apple or Tesla, which make smartphones and cars, it is almost solely a bet on AI. The company has produced about 15 cents of every dollar the American stock market has returned since 2023—returns that have kept consumers spending despite rising interest rates, tariffs and a war with Iran.
Yet many also see Mr Huang as a magician in a more worrying sense, fearing that he is an illusionist inflating a dangerous bubble. Through $1trn-worth of deals, Nvidia provides data-centre landlords and AI labs with cash or guarantees so that they can buy its GPUs. Some call it the “bank of AI”. At the very least, Nvidia’s critics say, its financial engineering smacks of the “vendor financing” which pumped up the revenues of networking-gear makers like Cisco in the dotcom mania of 2000-01, whose collapse brought about a recession.
Look more closely, however, and the worries are mostly unjustified. If Nvidia’s bets on ai come good, they could accelerate the technology’s adoption, boosting productivity and living standards. If they misfire, the cost will fall chiefly on Nvidia’s shareholders. That is how capitalism is supposed to work.
True, the dotcom and AI booms share unnerving similarities: an exciting new technology, an epic bull run, hubristic tech bosses. Nvidia’s rise from seller of chips to video-gamers and cryptocurrency miners to linchpin of the economy has been so rapid that many people have yet to learn how to say its name (“en-vidia”, not “nuh-vidia”). This mirrors the ascent of Cisco, which in 2000 briefly also became the world’s most valuable firm. Just as Cisco’s sales of routers and switches presupposed exponential growth in web traffic, Nvidia’s GPU revenues assume endless demand for AI tokens.
Cisco was right about eventual demand but wrong about the timing—hence the dotcom crash. Today it is the pace of AI adoption that is hard to forecast. Set aside Claude-addled software engineers and usage remains fledgling . If it does not soon soar, Nvidia’s customers may call in the guarantees just as the chipmaker’s own sales nosedive. Since no one is sure how quickly GPUs lose their value, any used chips Nvidia repossesses may be worthless.