From a scrappy underdog to overnight AI success: Inside Nvidia’s 30-yr ride

Chips used to render graphics propped up the company’s revenue for years as its other category, computing and networking, got a boost from areas like cryptocurrency mining. Then the graphics segment dipped sharply while number-crunching took up the slack.

The company’s graphics chips are mainly used for gaming, alongside professional applications such as 3D design. But an increasing number of its chips are being installed in data centers to help companies like Microsoft Corp., Alphabet Inc., OpenAI, and Amazon.com Inc. build their AI capabilities and offer those services to clients.

Last year’s release of ChatGPT ignited a frenzy of  interest in generative artificial intelligence — AI that creates content instead of just analyzing information. Nvidia’s leadership position caught the attention of investors, who returned to the stock after getting cold feet following a massive rally in 2021.

One way to assess a company’s technological prowess is to see how much pricing power it has with customers. That can be measured by looking at gross margin — the markup it makes atop the cost of building the product. Intel Corp.’s heyday was during the PC and laptop eras. Today Nvidia holds the crown, with the high profits on AI chips and computers driving it to record profitability.

The world’s top technology names don’t want to miss the AI boat, but to make their mark they need to spend billions of dollars on expensive and specialized servers. Nvidia is the primary choice, which means that massive capital expenditure budgets are likely to flow through to the chipmaker, even more so now that much of Silicon Valley has axed thousands of jobs and pledged to replace many roles with AI.