This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Nov. 30, 2022 may go down as one of the most important days in technological history.
That was the day OpenAI launched ChatGPT, the generative artificial intelligence (AI) chatbot that has dazzled everyone, including top CEOs and investors. ChatGPT became the fastest-growing consumer app in history, reaching 100 million monthly active users just two months after its launch, and the new app has made it clear that we're in a new era of technology -- the age of AI.
For investors, it's no secret that Nvidia (NASDAQ: NVDA) has been one of the biggest winners in the generative AI boom. The company's graphics processing units (GPUs) and other chips have experienced skyrocketing demand because those products are especially well suited to make demanding applications like ChatGPT run, and ChatGPT's own success has showcased the power of Nvidia's GPUs.
Buying Nvidia stock when ChatGPT was first launched would have been a genius move, but before I answer the question of how much the stock has returned since then, let's take a look at why Nvidia has been such a big winner from the AI boom.
Why Nvidia is leading the AI boom
Nvidia invented GPUs in 1999, and the company has been the leader in that category since then. GPUs are well suited for gaming, one of Nvidia's historical strengths, and those chips have also excelled at applications like cryptocurrency mining and autonomous driving. Now, artificial intelligence is having its turn.
Compared to central processing units (CPUs), GPUs perform technical calculations faster and more efficiently, which means they deliver better performance for AI training and inference, as well as other applications that use accelerated computing -- a faster way of processing workloads and what Nvidia CEO Jensen Huang describes as the future of data-center infrastructure.
Consequently, AI models have been trained on GPUs, and GPU technology has improved exponentially since its early years. According to Stanford's Human-Centered AI group, GPU performance "has increased roughly 7,000 times" since 2003, and the chips should continue to get better. GPUs are also more cost-effective than alternatives like CPUs.
Based on the MLPerf, an industry-standard benchmark for AI, Nvidia's GPUs have been the best in training and inference since the test was launched in 2019, which helps explain why Nvidia has a virtual monopoly in the category.
Advanced Micro Devices is the only other major GPU maker, but Nvidia still dominates the market with an estimated 98% share of the data-center GPU category. While competition is coming, including AMD's new Mi300 and Intel's Gaudi3 accelerator, both of which recently launched, it won't be easy to unseat Nvidia's dominance in AI GPUs. That explains why the company is now worth more than $2 trillion, and the stock is still testing all-time highs more than a year after ChatGPT was launched.
Nvidia's post-ChatGPT surge
When ChatGPT launched on Nov. 30, 2022, Nvidia stock actually jumped, gaining 8.2% to close at $169.15 that day. That gain was a sign that the market recognized that the new generative AI app could be a boon for the GPU superstar.
If you had bought Nvidia on that day, you would be up 428% as of March 12. That means that $10,000 invested in Nvidia on the day ChatGPT came out would have turned into $52,800. That jump compares to a gain of just 26.2% for the S&P 500 index during the same time, or almost 41% for the Nasdaq Composite.
As you can see from the chart above, Nvidia stock actually dipped to close out 2022, trending with the market, but then rallied as the AI boom began in earnest at the start of 2023. The stock surged in May after it blew away Wall Street with guidance calling for revenue to triple. This year, Nvidia has soared again on signs that Wall Street is still underestimating AI demand and as Nvidia enters new markets like PC chips.
Is it still safe to buy Nvidia?
What's also noteworthy about the stock's surge following ChatGPT's launch is that its valuation has actually shrunk during that time, as measured by the forward price-to-earnings (P/E) ratio, because profits have rocketed higher as it capitalized on AI demand.
NVDA PE Ratio (Forward) data by YCharts
That's a sign that buying Nvidia isn't as risky at it might seem after a run-up that's added more than $1.5 trillion in market value in less than 16 months and made it the third-most-valuable company in the world after Microsoft and Apple.
Investors should expect Nvidia stock to remain volatile along with the rest of the AI sector, but concerns about a potential bubble seem overblown. While competition is coming, Nvidia dominates the AI GPU space for a reason, and it should remain the leader as it continues to innovate at a rapid pace.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
