May 31, 2023 - Technology

AI's boom market christens first trillion-dollar darling

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Data: FactSet; Chart: Axios Visuals

Artificial intelligence's rise is already beginning to reshape tech's business landscape, with the emergence over the past week of the first big winner: chipmaker Nvidia.

Driving the news: Nvidia opened trading Tuesday with a market capitalization that topped $1 trillion before closing just shy of that level. That placed it in an elite club that also includes Apple, Google/Alphabet, Amazon and Microsoft.

Of note: The jump followed Nvidia's announcement this weekend of several new processors and systems optimized for AI-related tasks.

  • CEO Jensen Huang said at an event in Taiwan that the firm's GH-200 Grace Hopper "Superchip" — a module that's tuned for generative AI uses — is now in full production.
  • 256 of those "superchips," in turn, power a new AI-focused supercomputer Nvidia rolled out at the same time.
  • Such products can help speed up the lengthy, computationally demanding work of training and running large language models, like OpenAI's GPT-4.

How it works: Large language models really are huge — and getting huger.

  • They digest trillions of words and boil them down to billions of "parameters" — numbers that represent vast expanses of interrelationships among those bits of language.
  • That's why the current wave of generative AI pushes the boundaries of today's hardware capacity in both processing and memory.

Chip companies with products like Nvidia's, which deliver the best performance on the kinds of tasks AI demands, are among the clearest initial beneficiaries of the AI boom.

  • Nvidia has also pioneered software tools that combine with its chips to provide a fast foundation for training and deploying the large language models that run the latest AI services, like ChatGPT.

Between the lines: At the onset of a new era, it's impossible to know who will strike long-term gold. But, as was the case in 1849, it's hard to go wrong in the short term by focusing on those with the best pick-axes.

  • Microsoft is shaping up as an early winner thanks to its partnership with OpenAI. Microsoft has added AI-powered copilots to all its major software franchises and is also hoping the technology will revitalize its effort to take on Google in search.
  • Google is also a leader in AI and could well emerge as a beneficiary of the trend. At the same time, the use of generative AI to deliver conversational answers could upend the search-ad business that drives the bulk of its revenue and profits, meaning the company may have as much to lose as gain.
  • Meta, Apple and Amazon all have investments in AI, to varying degrees, but it's unclear both how those efforts pay off as well as the degree to which AI impacts their businesses.

The big picture. The arrival of a major new platform always reshuffles tech's deck of winners and losers.

  • Qualcomm, for example, was a significant player in cellular technology, but became a major global player thanks to the smartphone revolution.
  • Likewise, Intel dates back to the late 1960s, but saw its star really rise with the arrival of the personal computer in the 1980s — and then it truly hit the stratosphere when the internet took off in the '90s.

Be smart: It's not always that companies see the future coming.

  • Nvidia, for example, developed its core technology to power PC graphics cards.
  • The approach, however, turned out to be good for a whole bunch of other purposes, including cryptocurrency mining — and now AI.

Yes, but: Such shifts also lead some players to decline in value and influence.

  • IBM remains a large technology company, but doesn't lead the industry the way it did in the mainframe era.
  • Intel has also suffered, first by missing out on mobile and, more recently, from manufacturing missteps — along with the emergence of new kinds of computing tasks that its products don't always perform best at.
  • The combination has created quite the "mud hole" to dig out of, as CEO Pat Gelsinger acknowledged in an interview in Tuesday's Wall Street Journal.
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