Nvidia's stock price is up more than 140% since the beginning of this year—here's what gives the company an edge (2024)

It's understandable why so many investors have eyes on Nvidia — the value of its stock has soared by over 142% since the beginning of 2024.

The computing company reported its second fiscal quarter earnings after the stock market's close on Wednesday, beating analysts' expectations, according to LSEG estimates. Nvidia reported $30.04 billion in revenue for its fiscal second quarter, a 122% surge compared with the same period last year.

Nvidia investors may be getting used to this sort of news since the company's quarterly earnings have consistently exceeded analysts' expectations for six consecutive quarters.

It may be tempting to go all in on a given company following a wave of positive news. However, before you part with your investment dollars, it's important to understand crucial elements of the business, including what the company does and what gives it an edge.

What does Nvidia do?

Nvidia was founded on April 5, 1993 by Jensen Huang, Curtis Priem and Chris Malachowsky. The trio envisioned creating computer chips that could bring 3D graphics to gaming and went on to create its graphics processing unit in 1999.

You may have heard of central processing units, or CPUs, which function as the fundamental building blocks of computing and can handle a wide range of computing tasks like running programs, opening files and sending emails.

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GPUs, on the other hand, are more specialized and better able to handle more complex computing tasks and image rendering, according to Nvidia.

Nvidia used to primarily focus on producing chips for 3D gaming. However, nearly every major tech company, including Google, Meta and Microsoft, now use Nvidia's GPUs to power their own AI products and models.

"NVIDIA achieved record revenues as global data centers are in full throttle to modernize the entire computing stack with accelerated computing and generative AI," Jensen Huang, founder and CEO of Nvidia, stated in the company's second fiscal-quarter earnings report.

Nvidia dominates the AI chip market

Since Nvidia's computer chips are uniquely equipped to take on computing the complex algorithms that fuel generative AI models, it's benefited from increased demand for AI-powered products.

It's estimated that Nvidia dominates between 70% and 95% of the market for AI chips that are used to train and power AI models like OpenAI's ChatGPT, according to Mizuho Securities' data shared with CNBC in June.

However, Nvidia isn't without competition. AMD, a semiconductor company that also makes gaming GPUs, revealed its new AI chips in June. Intel, which used to dominate the U.S. chipmaking industry, announced its latest AI chips that same month.

Don't put all your eggs in one investment

Over the years, Nvidia has skyrocketed to a market capitalization of a little over $3 trillion, as of time of publication on Aug. 29.

However, that doesn't mean you should automatically buy in.

When crafting your portfolio, it's important to gain a clear understanding of the company and figure out whether it has a competitive advantage in the industry it operates in. Additionally, consider your long-term financial goals and keep in mind how much risk you're willing to tolerate.

And remember, any company's short-term performance isn't necessarily indicative of how it may do in the future. Any number of factors can cause a company's stock price to fluctuate or dip without warning.

A low-risk way to gain exposure to Nvidia is to invest in an index fund or exchange-traded fund that tracks the S&P 500. Your investment would not only go toward Nvidia, but be spread across hundreds of top companies such as Microsoft and Google.

It will also diversify your portfolio so that a downturn with one company doesn't completely derail your performance. Plus, these types of funds tend to cost less since they simply aim to mimic a market index like the S&P 500 and aren't actively managed.

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