- 1. Nvidia's remarkable growth is attributed to their position as leaders in AI chips, contributing to their substantial revenue, share price, and market capital.
- 2. Intel faced challenges in the AI market, resulting in a modest increase in market capitalization, as it strategizes to keep pace with Nvidia.
In the high-stakes world of business, the technology industry is no exception. The stakes, however, seem to be high with the rise of Artificial Intelligence (AI) chips. The industry is currently at a crossroads, with leading companies Nvidia and Intel vying for dominance via their groundbreaking solutions.
The financial underpinnings of this rivalry are fascinating and complicated. Built on the Black Scholes model, a strategy commonly used to calculate theoretical options prices, Nvidia's staggering 226% share price surge in 2023 alone becomes an embodiment of high volatility. This increase has significantly expanded the company's market capital, highlighting its financial robustness. However, such great figures raise questions about Nvidia's lofty evaluation, and whether it's justified by its future potential or simply the product of "bubble" dynamics.
Looking at the market reactions to Nvidia's competitors offers insight into another business principle, illustrated by Michael Porter in his Five Forces Framework. According to Porter's theory, businesses exist within a realm of five main forces: three from 'horizontal' competition— the threat of substitute products or services, the threat of established rivals, and the threat of new entrants — and two others from 'vertical' competition — the bargaining power of suppliers and the bargaining power of customers. In the case of Intel, a well-established name, it saw only a moderate rise in market capitalization. Intel's entrance into the AI market appears to pose a tangible threat from Nvidia, an established rival.
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