Nvidia has become the latest giant in the global chip industry, replacing Intel as a member of the blue-chip Dow Jones Industrial Average. The shift is largely due to Nvidia’s seven-fold gain in its share price over the past two years.
The demand for artificial intelligence (AI) chips remains strong, with high-end AI chips still in short supply. However, investing in chip stocks has been an extremely risky bet this year, with Intel’s shares plummeting nearly 50% while Nvidia’s tripled.
Several factors contribute to Nvidia’s dominance:
Firstly, the industry is struggling to keep pace with the design and manufacturing of high-performance AI chips. Increasing quality standards mean long lead times for those who can produce advanced chips. Intel, in particular, has faced challenges after delaying changes to its factories in 2015, allowing Taiwanese rival TSMC to close the technology gap.
Secondly, two of the world’s largest chipmakers are struggling to recover from previous mis-steps. Samsung and SK Hynix are expected to account for a significant market share this year, overtaking their competitors.
Lastly, the premium segment of chips has been outperforming the rest of the market, with the profitability gap between high-end AI chips and general-purpose memory chips widening in recent years.
The stakes are higher than ever, with Samsung missing profit estimates and Intel posting its biggest quarterly loss. Nvidia’s success is sending a clear message to global chipmakers: if you can’t beat them, join their supply chain.
Source: https://www.ft.com/content/a7288a4d-eb3a-4464-9b82-e3eb0e087930