Nvidia's stock price has increased by over 140% in 2021 - discover the factors contributing to its success.

Since the beginning of 2024, Nvidia's stock value has increased by more than 142%, making it a highly sought-after investment.

Nvidia reported $30.04 billion in revenue for its fiscal second quarter, a 122% increase compared to the same period last year.

Nvidia has surpassed analysts' expectations in quarterly earnings for six consecutive quarters, a trend that may be becoming familiar to its investors.

Before investing in a company based on positive news, it's crucial to understand its business and what sets it apart.

What does Nvidia do?

In 1993, Jensen Huang, Curtis Priem, and Chris Malachowsky founded Nvidia with the goal of developing computer chips for 3D graphics in gaming. They achieved this goal in 1999 with the creation of their graphics processing unit.

Computing tasks such as running programs, opening files, and sending emails can be handled by central processing units (CPUs), which serve as the fundamental building blocks of computing and are capable of performing a wide range of computing tasks.

Stressed about money? Try our new online course.

Nvidia claims that GPUs are more specialized and capable of handling more complex computing tasks and image rendering compared to CPUs.

Nvidia's primary focus was on manufacturing chips for 3D gaming. However, major tech companies such as Google, Meta, and Microsoft now utilize Nvidia's GPUs to power their AI products and models.

Jensen Huang, CEO of Nvidia, announced in the company's second fiscal-quarter earnings report that NVIDIA recorded a record revenue due to the global data centers' increased demand to modernize their computing stack with accelerated computing and generative AI.

Nvidia dominates the AI chip market

Nvidia's computer chips, uniquely suited for AI algorithms, have benefited from increased demand for AI-powered products.

Nvidia is estimated to have between 70% and 95% of the market share for AI chips used in training and powering AI models like OpenAI's ChatGPT, according to Mizuho Securities' data shared with CNBC in June.

Nvidia faces competition from AMD and Intel in the AI chip market.

Don't put all your eggs in one investment

Nvidia's market capitalization has surged to approximately $3 trillion as of August 29.

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

To create a successful portfolio, it is crucial to comprehend the company's competitive edge in its industry and align it with your long-term financial objectives while considering the level of risk you're comfortable with.

A company's short-term performance does not necessarily predict its future success, as a variety of factors can cause its stock price to fluctuate or decline unexpectedly.

Investing in an index fund or exchange-traded fund that tracks the S&P 500 is a low-risk way to gain exposure to Nvidia, as your investment would be spread across hundreds of top companies such as Microsoft and Google.

Having a diversified portfolio will help mitigate the impact of a downturn with one company and reduce the cost of management since index funds aim to replicate market indices like the S&P 500.

Sign up for CNBC's online course to learn how to manage your money effectively and boost your savings, investments, and confidence. Use code EARLYBIRD for a 30% discount through September 2, 2024.