Why are Nvidia's stock prices rising?

Nvidia, known for making chips used in video games, has pivoted to the data centre market over the past few years.

Nvidia's business rapidly expanded during the pandemic when gaming took off, cloud adoption surged and crypto enthusiasts turned to its chips for mining coins. AP

Chip designer Nvidia closed Tuesday with a trillion-dollar market value for the first time, part of a steady climb in the stock's price in recent months on the back of the artificial intelligence boom.

Here's an explainer on Nvidia and its role in powering the radical new technology.

How big is Nvidia in terms of market value?

Nvidia's $1 trillion valuation makes it the fifth most valuable US company behind Apple, Microsoft, Alphabet and Amazon. Two other companies, Tesla and Meta Platforms, have in the past eclipsed the $1 trillion level, but are currently worth less than that.

From gaming to AI: Nvidia's focus shift

Nvidia, known for its chips used in video games, has pivoted to the data centre market over the past few years.

The company's business rapidly expanded during the pandemic when gaming took off, cloud adoption surged and crypto enthusiasts turned to its chips for mining coins.

The data centre chip business accounted for more than 50 per cent of the company's revenue in the financial year ended January 29.

Why is generative AI a hot topic?

Viral chatbot ChatGPT has made generative AI a buzzword this year. The technology uses vast troves of pre-existing data to create new content, from poems to images and even computer code.

Microsoft Corp and Alphabet-owned Google, two of the biggest players in the space, believe that generative AI can change how work is done. The two have raced to add the technology to their search engines and productivity software as they seek to dominate the industry.

More recently, chipmaker Advanced Micro Devices released details on its new AI chip to try to challenge Nvidia's market share.

Goldman Sachs analysts estimate that US investment in AI could approach 1 per cent of the country's economic output by 2030.

What is Nvidia's role in the AI boom?

The large computers that process data and power generative AI run on powerful chips called graphics processing units.

Nvidia controls about 80 per cent of the GPU market, according to analysts.

GPUs are designed to handle the specific kind of maths involved in AI computing very efficiently. By contrast, generic central processing units from companies such as Intel handle a broader range of computing tasks with less efficiency.

OpenAI's ChatGPT, for example, was created with thousands of Nvidia GPUs. Tesla chief executive Elon Musk has also secured GPUs from Nvidia for his AI start-up, The Financial Times reported in April.

Who are Nvidia's rivals in this market?

Nvidia's main competitors include Advanced Micro Devices and AI chips made in-house by companies such as Amazon, Google and Meta Platforms.