NVIDIA: From Struggling Startup to AI Powerhouse Worth Trillions

In 2024, NVIDIA became the world’s most valuable company, surpassing a mind-boggling $3 trillion market cap and overtaking tech giants like Apple and Microsoft. But here’s the kicker – NVIDIA is also the primary force behind the incredible advancements in artificial intelligence we’re seeing today. Powerhouses like ChatGPT simply wouldn’t exist without this company.

To put NVIDIA’s massive scale into perspective, its value now exceeds the entire GDP of countries like Australia, South Korea, and even Russia. Pretty wild, right? So how exactly did this company reach such astronomical heights in record time, outpacing every other global tech company? And what about their development of humanoid robots that could potentially replace millions of human workers? Let’s dive in.

The Founding Story: Three Friends and a Vision

NVIDIA’s remarkable story began with three founders: Jensen Huang, Chris Malachowsky, and Curtis Priem. Huang was working as a processor designer at AMD, while Priem and Malachowsky were graphics processor engineers at Sun Microsystems.

Fate brought these three together when Huang was assigned to the same department where Priem and Malachowsky were working. They quickly developed a strong friendship, but their journey took an unexpected turn when Sun Microsystems started downsizing its graphics engineering department. This led Priem and Malachowsky to leave the company and contemplate starting their own venture.

They reached out to their friend Jensen Huang with an offer to become their third partner. Interestingly, Huang wasn’t initially thrilled about the idea – he had a comfortable job with a good salary. But after some persistent persuasion from his friends, Huang made what would become the most successful decision of his life and agreed to join them.

The funny thing? The three founders weren’t even sure what kind of company they wanted to create! They just knew it had to be in the computer industry, which was experiencing the beginning of a revolution in the 1990s. Although personal computers weren’t widespread yet, the three friends were confident they would explode in popularity.

Finding Their Niche in a Crowded Market

Their first challenge was standing out in a market where major technology companies were already competing fiercely to enter the personal computer industry. To succeed, they needed to offer something unique and innovative.

The answer? Video games.

At that time, computers were primarily used for office work and didn’t focus much on entertainment. Most didn’t even have microphones, speakers, or graphics cards. The founders decided to invent a component that would allow any computer to run 3D graphics, enabling high-performance video games – which were already popular but mostly available only on gaming consoles from companies like Sega and Nintendo.

If NVIDIA could bring modern games to computers, they’d strike gold.

Early Struggles and Near Bankruptcy

Despite their expertise in technology, the founders had limited experience with personal computers since they weren’t widely available in the 90s. Their solution? They bought a Gateway 2000 computer, completely disassembled it to understand how it worked, and designed a graphics processing unit for it.

Financing was another hurdle. The trio pooled their life savings, scraping together $40,000 as initial funding. As for the company name, they settled on “NVIDIA” – derived from “NV” (next version) files they were working on, with the Latin word “invidia” meaning “envy.”

While $40,000 was a decent sum in the 1990s, it was a drop in the ocean for the trillion-dollar tech world. Through venture capital firm Sequoia Capital, NVIDIA secured $20 million in funding from investor Don Valentine. Despite his somewhat mafia-boss-sounding name, Valentine was actually a Silicon Valley venture capital kingpin. After agreeing to fund NVIDIA, he jokingly (or perhaps not so jokingly) told Huang, “If I lose this investment, I’ll kill you and your partners.”

Talk about motivation!

The First Major Setback

In 1995, NVIDIA released its first graphics card, the NV1. Unfortunately, it was a spectacular failure. The card’s architecture was too advanced for existing systems, wasn’t compatible with all devices, and was prohibitively expensive. Of the 250,000 cards NVIDIA sent to their partner Diamond Multimedia, only 1,000 sold – the rest were returned.

This first major setback plunged NVIDIA into financial crisis, as they had invested all of Valentine’s funding in the NV1 cards. The pressure mounted as they desperately sought new investors, but after losing almost all of Valentine’s money, no one was willing to take the risk. Valentine, despite his earlier threats, showed patience – he’d seen many companies fail before bouncing back spectacularly.

To reduce losses, NVIDIA laid off many employees and started looking for new projects to avoid bankruptcy.

The Sega Partnership and a Narrow Escape

Their salvation came through a partnership with Sega. The project involved designing NVIDIA’s second-generation card, the NV2, for Sega devices. A formal contract was signed in 1997, and work began.

But suddenly, without warning, Microsoft launched a unified technology for game development based on the polygon system – completely different from NVIDIA’s approach. Game developers quickly began supporting Microsoft’s technology, leading Sega to fear that their NVIDIA-powered device would fail because it used a different technology incompatible with Windows.

Sega canceled the project, and Huang was convinced this was the end of NVIDIA. However, he had one last card to play: the contract obligated Sega to pay a $5 million compensation fee if they withdrew from the partnership.

Huang and Sega’s CEO met, with Huang requesting the full contract value and admitting that without the penalty payment, NVIDIA would declare bankruptcy within weeks. He had little hope Sega would pay, but to his surprise, Sega’s CEO Shoichiro Irimajiri – who admired Huang – paid the full $5 million. This payment was the primary reason NVIDIA avoided bankruptcy and eventually achieved its tremendous success.

The Breakthrough: RIVA 128

After this near-death experience, Huang worked on a new graphics card, knowing it was their last chance. In 1997, NVIDIA launched the RIVA 128, which uniquely could render both 2D and 3D graphics simultaneously – something no other graphics card could do at the time.

The RIVA was revolutionary, delivering high-quality, fast graphics that supported Microsoft’s architecture. It saved NVIDIA from bankruptcy, selling over one million units within four months of its release.

From One of Many to Market Leader

During the 1990s, more than 70 companies specialized in graphics technology. Due to intense competition, these companies began failing one after another. Eventually, only NVIDIA and ATI Technologies remained standing.

ATI was a Canadian graphics company that had been around longer than NVIDIA but produced lower-quality cards. As an American company, NVIDIA had stronger relationships with tech giants like Microsoft and Sony. Eventually, ATI was acquired by what’s now known as AMD, leaving NVIDIA to dominate the market.

Adapting to Survive

Despite controlling the graphics market, NVIDIA’s profits remained low, sometimes even showing losses. After a management meeting, they discovered the culprit: the high cost of manufacturing graphics cards in America.

Their solution? Instead of designing and manufacturing cards themselves, they would design them and outsource manufacturing. NVIDIA partnered with Taiwanese semiconductor manufacturing giant TSMC, which to this day produces processors for Apple, Qualcomm, and NVIDIA.

Just as things were improving, one of the biggest tech industry disasters struck: the dot-com bubble burst. All technology companies, including NVIDIA, lost millions. The dot-com bubble was a financial crisis in the late 1990s caused by blind investment in internet companies. When investors realized their investments were overvalued and started selling shares, it destroyed 90% of technology companies, with stock market shares losing 77% of their value in just 24 hours.

Thanks to their successful latest products and offshore manufacturing decision, NVIDIA managed to weather the crisis.

The First GPU and Major Partnerships

In 1999, NVIDIA launched one of its most successful cards: the GeForce 256. This card was considered the world’s first GPU (Graphics Processing Unit). It was designed to handle complex games, and in 2000, Microsoft was developing the Xbox and decided to collaborate with NVIDIA to include GeForce cards in the console.

In 2001, Microsoft funded NVIDIA with $1 billion. That same year, Apple used NVIDIA cards in its latest computers, the Power Mac G4. These partnerships marked the beginning of NVIDIA’s greatest successes, as developers increasingly focused on creating games optimized for NVIDIA cards, and computer companies began offering devices in collaboration with NVIDIA.

Another Setback: “The Vacuum Cleaner”

Following this success, NVIDIA launched a new card: the GeForce FX 5800X. Unfortunately, it was a major failure that damaged the company’s reputation. The card had power consumption issues, and despite having an excellent cooling fan, it couldn’t manage the device’s high heat. Worse, it was so noisy that people nicknamed it “the vacuum cleaner.”

The CUDA Revolution

To recover from this crisis, NVIDIA needed something game-changing. In 2004, the company began working on a new project: a unified computing architecture. This programming language, announced in 2006, completely transformed how we use graphics cards.

To understand this transformation, we need to understand the difference between CPUs (Central Processing Units) and GPUs (Graphics Processing Units):

• A CPU typically consists of 6 to 16 cores or processing units, with each core representing one processing unit.
• A GPU contains thousands of cores that can handle multiple tasks simultaneously.

For clarification: A CPU processes data like the device you’re looking at, handling tasks one after another. A GPU processes thousands of tasks simultaneously, like what you see on the screen.

Think of it this way: If you were trying to write a book, using a CPU would be like having one person write the first page, then the second, then the third, until the last page. Using a GPU would be like dividing the book among four people, all writing their assigned pages at the same time.

If you’re wondering why we use CPUs at all if GPUs are more powerful, the answer is that CPUs have specific uses and tasks that can only be performed through them. The best data processing solution is to combine both, as each has pros and cons that complement each other.

NVIDIA understood the incredible performance potential of combining CPU and GPU power. They introduced a parallel computing platform known as CUDA, which uses both the GPU and CPU, switching between them to deliver optimal performance. This means that when you combine a processor and graphics card with the CUDA platform, the device becomes more flexible and can be easily used for cryptocurrency mining, deep learning, and most importantly in today’s world: artificial intelligence.

Weathering Financial Storms

Two years after NVIDIA announced the CUDA platform, the 2008 global financial crisis hit, affecting all technology companies. As investors withdrew their money from the stock market, NVIDIA lost 76% of its value.

This massive loss wasn’t solely due to the financial crisis. Another factor was a fatal manufacturing defect in one of their graphics cards used in Apple, Dell, and HP laptops. After these devices reached users, problems emerged: overheating, screen issues, and eventually, all these cards failed. This forced NVIDIA to pay compensation amounting to $200 million.

To make matters worse, in 2011, NVIDIA tried to compete with companies like Qualcomm and Apple by releasing the Tegra line of mobile phone processors. However, the Tegra processors were flawed, defective, and incompatible with many Android systems. The company then refocused on what distinguished it: graphics cards.

Three Pillars of Profit

To understand NVIDIA’s incredible profits, we need to understand their three main revenue streams:

1. Gaming: NVIDIA has manufactured the best graphics cards for 30 years and has collaborated with the world’s largest gaming companies.
2. Cryptocurrency Mining: Mining cryptocurrencies requires computers with enormous processing power – power that can only be found in NVIDIA cards. Interestingly, the company wasn’t initially interested in cryptocurrencies, but as the crypto revolution grew and demand for mining increased, NVIDIA earned billions from it.
3. AI – The Game Changer: What truly transformed NVIDIA’s history (and human history) was the AI revolution. Artificial intelligence requires tremendous computing power, and one of the companies that most impacted NVIDIA’s success and profitability was OpenAI, the creator of ChatGPT.

According to studies, ChatGPT currently receives over a billion requests per day. To run an AI system handling this enormous number of daily requests, you need a data factory composed of millions of processors. The company hosting ChatGPT’s centers is NVIDIA, and due to the AI boom, NVIDIA’s shares have skyrocketed. If the AI revolution continues, analysts predict NVIDIA could become the first company to reach a value of $5 trillion.

NVIDIA: The AI Nation

NVIDIA’s tremendous success has reached the point where it could be considered an independent nation. With its current valuation of $2.7 trillion, it can be compared to the GDP of entire countries – if NVIDIA were a country, its GDP would be higher than Russia, Korea, Spain, Turkey, and even Saudi Arabia. Many refer to NVIDIA as the “AI Nation.”

The Future: Super AI and Humanoid Robots

The frightening development of artificial intelligence – whether creating millions of images or communicating with millions of people daily – is just the beginning. What comes after all this development? Super AI or Superintelligence – a form of artificial intelligence completely different from what we know today that would be thousands of times smarter than humans.

Another type of AI, although many consider it science fiction, is being actively worked on by companies: Sentient AI, or conscious artificial intelligence. This would be AI aware of its own existence – a terrifying prospect raising numerous ethical questions.

With NVIDIA and OpenAI’s plans to use more than a million graphics cards in AI, they could accelerate the emergence of superintelligence. If we live to see this new AI, one of its most important applications will be humanoid robots.

Work on this technology is already underway. In 2023, NVIDIA, OpenAI, Amazon founder Jeff Bezos, and other tech giants partnered to create Figure AI. The primary goal of this company is to develop humanoid robots, having raised investments worth $675 million and signed agreements with companies like BMW to use these robots in car manufacturing.

Currently, the company has produced multiple robots and plans to distribute 100,000 robots across different fields. This has sparked debates about what will happen to people working in jobs that could be taken by robots, and what will happen to humanity if these robots achieve superintelligence or conscious AI.

Looking Ahead

The story of NVIDIA’s rise from a struggling startup to a trillion-dollar AI powerhouse is nothing short of extraordinary. What began with three friends and a $40,000 investment has transformed into a company reshaping our technological future.

As we stand on the precipice of a new era defined by artificial intelligence and possibly humanoid robots, NVIDIA’s role in this evolution cannot be overstated. The question isn’t whether technology will continue advancing – it’s how quickly it will transform our world, and whether we’re ready for what comes next.

The AI revolution is just beginning, and NVIDIA is leading the charge. Hold on tight – we’re in for quite a ride.