Nvidia became the world's most valuable company on Tuesday, surpassing Microsoft , due to its central role in the race to dominate artificial intelligence technology.
Nvidia's shares rose 3.5% to $135.58, bringing its market value to $3.335 trillion. This comes shortly after it overtook Apple to become the second most valuable company.
Microsoft's market value fell to $3.317 trillion after a 0.45% dip in its shares, while Apple's value dropped to $3.286 trillion following a decline of over 1%.
Nvidia's dramatic increase in market value over the past year highlights Wall Street's enthusiasm for AI technology. Despite the boost Nvidia has given to the S&P 500 and Nasdaq , there are concerns that the AI hype might diminish if spending on the technology slows down.
"Nvidia's market dominance is clear," said Steve Sosnick, chief market strategist at Interactive Brokers. The company has also become the most traded on Wall Street, with an average daily turnover of $50 billion, compared to around $10 billion for Apple, Microsoft, and Tesla , according to LSEG data. Nvidia now represents about 16% of all trading in S&P 500 companies.
Nvidia's stock has nearly tripled this year, significantly outpacing Microsoft's 19% increase, due to high demand for its processors. Major tech companies like Microsoft, Meta Platforms , and Alphabet are competing to enhance their AI capabilities, driving demand for Nvidia's superior AI processors, which are in tight supply. Many investors view Nvidia as the biggest beneficiary of the AI boom.
"Nvidia's success has garnered significant attention, but even a small mistake could lead to a major stock correction," warned Oliver Pursche, senior vice president at Wealthspire Advisors in New York. Nvidia's stock hit a record high on Tuesday, adding over $110 billion to its market value, equating to the entire value of Lockheed Martin .
The company's market value surged from $1 trillion to $2 trillion in nine months by February, and then to $3 trillion in just over three months by June. Nvidia has consistently exceeded Wall Street's expectations for revenue and profit since a significant forecast a year ago. The demand for its graphics processors continues to outstrip supply, with executives indicating that demand for its Blackwell AI chips could surpass supply well into the next year.
Despite Nvidia's stellar stock performance, the stock's earnings valuation has fallen due to sharp increases in analysts' future earnings expectations. Nvidia recently traded at 44 times expected earnings, down from over 84 a year ago, according to LSEG data. To appeal to individual investors, Nvidia recently executed a 10-for-one stock split.