NVIDIA (NVDA) Spotlight: From Graphics Giant to AI Titan

The AI Giant

If for more than a decade, the attention of tech investors has been on “Big Tech” (Microsoft, Google, Facebook, etc.), the last few years have seen a marked shift toward hardware over software. The first sign was the spectacular rise of Tesla from a niche cult-like stock to one of the largest companies in the world.

But there would be one company sitting at the border between software and hardware that would capture as good, if not stronger, returns: NVIDIA.

Now mostly viewed as an AI company with sudden success, NVIDIA has actually patiently built its unique technology and market position over 20-30 years. This might give it a strong position to stay a dominant actor in the world of tech for the years to come.

NVIDIA’s Path To Success

CPU vs GPU

For a long time, NVIDIA was a successful but niche computer hardware company specializing in producing graphic cards or graphics processing units (GPUs). At the time, GPUs were seen as an important computing hardware element but secondary to the all-important central processing unit (CPU).

CPUs are designed to perform very quick computations that require doing one after the other, making them great at complex calculations.

In contrast, GPUs are less powerful but designed to perform many parallel calculations simultaneously, making them better at handling large amounts of data.

During this period from the 1990s to the 2010s, CPU producers like Intel reigned over the industry, while high-quality GPUs were mostly only used by gamers and graphic designers for high-end PC.

Building A GPU Business

Early on, NVIDIA founder Jensen Huang and his co-founders reasoned that the pace of computing would outstrip CPU capacity. Jensen was instrumental in developing the first GPUs for Sun Microsystems, today Oracle.

He would then become one of the co-founders of NVIDIA in 1993, embracing the PC revolution in the early 1990s.

“We thought, you know, maybe 3D graphics would be the thing that’d be really cool. And for the very first time, you have a platform that could both be a computer and used for, you know, whatever you want to use it for. You could also use it to play games. And, we just need to go build a chip that makes it possible to play games.

None of us had even seen a PC before. So we had to go buy a PC. We bought a Gateway 2000. Nobody even knows how to program Windows or DOS. Nobody even seen DOS. And so we had to tear it apart, start learning about the industry.”

Jensen Huang, in an interview with Sequoia

It’s funny to think that, in retrospect, gaming was not a very “serious” market at the time compared to more lucrative and larger enterprise-focused business models. The first cards were not a commercial success. Their 2nd generation GPU was better but turned suddenly obsolete when the market turned toward Microsoft’s DirectX architecture for videogames.

Ultimately, it took NVIDIA six years and three product lines to find product-market fit, with many near-death events for the company.