Nvidia poised to overtake Apple as world's second most valuable company

Nvidia (NVDA.O) could soon overtake Apple to become the world's second most valuable company.

The company, which has been a mainstay in the artificial intelligence revolution, is poised to displace the iPhone maker that has dominated Wall Street for decades.

The reliance of virtually all artificial intelligence applications, such as OpenAI's ChatGPT, on Nvidia's high-end chips has helped the company's stock value nearly triple in the past year, reaching $2.72 billion.

In contrast, Apple ceded its No. 1 spot to Microsoft (MSFT.O) earlier this year, as the company has faced weak demand for its iPhones and stiff competition in China. Its most recent valuation was $2.93 billion.

"This is certainly notable because Apple has been so dominant for so long, especially in terms of growth and innovation. Recently, however, Apple's innovation curve seems to have flattened, showing slower future growth," said Brian Mulberry, client portfolio manager at Zacks Investment Management.

"On the other hand, Nvidia has been able to take advantage of successive waves of growth. Starting with gaming demand, then crypto and now AI, they have been able to perfectly match innovation with demand, resulting in explosive growth."

The semiconductor company has significant weight in the S&P 500 (.SPX) and Nasdaq (.IXIC) and has been instrumental in driving U.S. stocks to all-time highs. It accounted for more than a third of the S&P 500's gains this year.

Nvidia also became the fastest company to go from $1 trillion to $2 trillion by 2024, surpassing Amazon.com (AMZN.O), Alphabet (GOOGL.O) and Saudi Aramco (2222.SE).

Since its spectacular forecast about a year ago, the company has consistently beaten Wall Street's lofty expectations for revenue and earnings, with demand for its graphics processors far outstripping supply as tech giants rush to integrate AI applications.

Sharp increases in analysts' earnings estimates have resulted in a drop in the valuation of future stock earnings, even with the stock price rising rapidly.

It traded at 37 times forward earnings, compared with 48 times earnings a year ago, according to LSEG data.

Nvidia is also popular in the derivatives market. The GraniteShares 2x Long NVDA Daily ETF (NVDL.O), which tracks twice the daily percentage change in Nvidia, is the largest single-stock ETF.

The fund hit $1 billion in daily trading volume for the first time before Nvidia's results last week, and its total net assets have reached a record $2.82 billion this week, according to Lipper data.

Options traders are optimistic as Nvidia volumes, particularly for call options, have increased in recent sessions following the rise in its share price.

Thursday marked the fifth consecutive session in which more than 1 million Nvidia call options changed hands, the longest streak in the stock's history, according to a Reuters analysis of Trade Alert data.

Collaboration: Grupo Auge | Reuters (International).