Nvidia, the world’s most valuable company

On 18 June 2024, Nvidia became, for the first time, the world’s most valuable listed company, ahead of Microsoft and Apple. Its rise was driven by demand for artificial intelligence chips, a market in which the company holds a central position. The milestone symbolised how far artificial intelligence had become one of the engines of the stock market.

A record of this kind lends itself to headlines, but also to hasty readings. It is worth understanding what exactly it measures, what explains it and what it does not say about the future. What it does reveal is where global capital is heading and which sectors concentrate investors’ expectations, which is useful to know both for those who invest and for those who run a company. And it is a reminder that markets reflect not only the real economy but also what is expected of it.

A stock-market milestone

Nvidia overtook Microsoft and Apple in market value, that is, in the combined value of all its shares on the stock market. It is a way of measuring the size of a company according to what investors are willing to pay for it at any moment, and it can change quickly. It does not coincide with its sales, its profits or its number of employees. That is why a company can be very large on the stock market without being so large in terms of current turnover or profits.

The companies that develop these artificial intelligence systems need very powerful processors to train them and make them run, and the value of whoever makes them reflects the expectation that this demand will continue. That expectation is, in part, a bet on the future and therefore can change. If those expectations moderate, market value can readjust quickly, as with any asset whose price rests on what is expected.

The physical side of AI

The AI boom also has a physical side: data centres that consume enormous amounts of electricity. Behind every application are servers that run day and night, need cooling and take up land and high-capacity electrical connections. Artificial intelligence seems immaterial, but it depends on very concrete infrastructure. Buildings, cables, cooling systems and electricity supply agreements are part of the business, although they are rarely seen.

Energy was thus becoming the strategic resource of the digital economy, and its cost and availability now enter the plans of any technology project. For companies considering using or developing these tools, it is worth including that factor from the start, alongside equipment and staff costs, so as not to discover it when the project is already under way.

What to review

Stock-market leaderships change over time. The companies at the top of the ranking at a given moment do not always hold that position a decade later, and anyone investing only because of the size or fame of a company takes a risk they sometimes fail to see. A portfolio should not depend excessively on a single company or a single theme. The history of markets is full of leaders that ceased to be so, without that meaning they were bad companies.

Those who invest should understand what they expect from each position and why, what its weight is in the whole and what would happen if its price fell sharply. This note is general information and not a recommendation: each person or company must fit its portfolio to its goals, its time horizon and its capacity to bear losses, with the support of an adviser. Reviewing the make-up of the funds one holds, and not just their names, helps to see how much each company really weighs.

Being the leader of the moment is not the same as being safe.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.