Technology
The Emergence of Commercial Drones
Unmanned aerial vehicles (UAVs), commonly known as drones, have actually been around for about a century.
Even in 1918, the U.S. military had its first UAV, which acted as a “cruise missile” in combat. Nicknamed the Kettering Bug, it was essentially a flying bomb with 12-foot wings made of cardboard and paper mâché, running off a 40-horsepower Ford engine.
As you might imagine, the military has been a catalyst over the years for the development of UAV technology, which has allowed commercial drones to become cheaper, lighter, and more sophisticated. Today, drones aren’t just for delivering military payloads in foreign lands – UAVs will also be delivering your packages, taking photos, providing wireless internet services, and monitoring conservation efforts in remote locations.
The Commercial Drones Market
The following infographic comes to us from IFLY, a Drone Economy Strategy ETF focusing on the “development, research, and utilization of drones”.
It shows the history of military drone applications, and how that has led to today’s emerging market for commercial drones.
According to BI Intelligence, the total drone market today is close to $10 billion.
And despite the military market remaining the largest for now, it is worth noting that the commercial drone sector will grow at a compound annual growth rate (CAGR) of 19% between 2015 and 2020. Eventually, it will pass the military market in size, as that is only growing at a 5% clip.
The Emerging Opportunity for Commercial Drones
The growing market on the civilian side will impact a variety of industries, including private security, law enforcement, real estate, media, film, construction, mining, agriculture, and utilities.
Hardware for commercial drones is important, especially in the early stages. However, as we see in other sectors, it will likely be the software that makes the difference in many applications. As it becomes cheaper to customize commercial drones, the door will be opened to allow new functionality in a wide array of niche spaces. Sophisticated drones could soon be doing everyday tasks like fertilizing crop fields on an automated basis, monitoring traffic incidents, surveying hard-to-reach places, or even delivering pizzas.
At the end of the day, the impact of commercial drones could be $82 billion and a 100,000 job boost to the U.S. economy by 2025.
Technology
Nvidia Joins the Trillion Dollar Club
America’s biggest chipmaker Nvidia has joined the trillion dollar club as advancements in AI move at lightning speed.
Nvidia Joins the Trillion Dollar Club
Chipmaker Nvidia is now worth nearly as much as Amazon.
America’s largest semiconductor company has vaulted past the $1 trillion market capitalization mark, a milestone reached by just a handful of companies including Apple, Amazon, and Microsoft. While many of these are household names, Nvidia has only recently gained widespread attention amid the AI boom.
The above graphic compares Nvidia to the seven companies that have reached the trillion dollar club.
Riding the AI Wave
Nvidia’s market cap has more than doubled in 2023 to over $1 trillion.
The company designs semiconductor chips that are made of silicon slices that contain specific patterns. Just like you flip an electrical switch by turning on a light at home, these chips have billions of switches that process complex information simultaneously.
Today, they are integral to many AI functions—from OpenAI’s ChatGPT to image generation. Here’s how Nvidia stands up against companies that have achieved the trillion dollar milestone:
| Joined Club | Market Cap in trillions | Peak Market Cap in trillions |
|
|---|---|---|---|
| Apple | Aug 2018 | $2.78 | $2.94 |
| Microsoft | Apr 2019 | $2.47 | $2.58 |
| Aramco | Dec 2019 | $2.06 | $2.45 |
| Alphabet | Jul 2020 | $1.58 | $1.98 |
| Amazon | Apr 2020 | $1.25 | $1.88 |
| Meta | Jun 2021 | $0.68 | $1.07 |
| Tesla | Oct 2021 | $0.63 | $1.23 |
| Nvidia | May 2023 | $1.02 | $1.02 |
Note: Market caps as of May 30th, 2023
After posting record sales, the company added $184 billion to its market value in one day. Only two other companies have exceeded this number: Amazon ($191 billion), and Apple ($191 billion).
As Nvidia’s market cap reaches new heights, many are wondering if its explosive growth will continue—or if the AI craze is merely temporary. There are cases to be made on both sides.
Bull Case Scenario
Big tech companies are racing to develop capabilities like OpenAI. These types of generative AI require vastly higher amounts of computing power, especially as they become more sophisticated.
Many tech giants, including Google and Microsoft use Nvidia chips to power their AI operations. Consider how Google plans to use generative AI in six products in the future. Each of these have over 2 billion users.
Nvidia has also launched new products days since its stratospheric rise, spanning from robotics to gaming. Leading the way is the A100, a powerful graphics processing unit (GPU) well-suited for machine learning. Additionally, it announced a new supercomputer platform that Google, Microsoft, and Meta are first in line for. Overall, 65,000 companies globally use the company’s chips for a wide range of functions.
Bear Case Scenario
While extreme investor optimism has launched Nvidia to record highs, how do some of its fundamental valuations stack up to other giants?
As the table below shows, its price to earnings (P/E) ratio is second-only to Amazon, at 214.4. This shows how much a shareholder pays compared to the earnings of a company. Here, the company’s share price is over 200 times its earnings on a per share basis.
| P/E Ratio | Net Profit Margin (Annual) | |
|---|---|---|
| Apple | 30.2 | 25.3% |
| Microsoft | 36.1 | 36.7% |
| Aramco | 13.5 | 26.4% |
| Alphabet | 28.2 | 21.2% |
| Amazon | 294.2 | -0.5% |
| Meta | 33.9 | 19.9% |
| Tesla | 59.0 | 15.4% |
| Nvidia | 214.4 | 16.19% |
Consider how this looks for revenue of Nvidia compared to other big tech names:
$NVDA $963 billion market cap, 38x Revenue
$MSFT $2.5 trillion market cap, 12x Revenue$TSLA $612 billion market cap, 7.8x Revenue$AAPL $2.75 trillion market cap, 7.3x Revenue$GOOG $1.6 trillion market cap, 6.1x Revenue$META $672 billion market cap, 6x Revenue pic.twitter.com/VgkKAfiydx— Martin Pelletier (@MPelletierCIO) May 29, 2023
For some, Nvidia’s valuation seems unrealistic even in spite of the prospects of AI. While Nvidia has $11 billion in projected revenue for the next quarter, it would still mean significantly higher multiples than its big tech peers. This suggests the company is overvalued at current prices.
Nvidia’s Growth: Will it Last?
This is not the first time Nvidia’s market cap has rocketed up.
During the crypto rally of 2021, its share price skyrocketed over 100% as demand for its GPUs increased. These specialist chips help mine cryptocurrency, and a jump in demand led to a shortage of chips at the time.
As cryptocurrencies lost their lustre, Nvidia’s share price sank over 46% the following year.
By comparison, AI advancements could have more transformative power. Big tech is rushing to partner with Nvidia, potentially reshaping everything from search to advertising.
-
VC+3 weeks agoComing Soon: Here’s What’s Coming to VC+ Next
-
Maps1 day agoMapped: Renewable Energy and Battery Installations in the U.S. in 2023
-
Economy2 weeks agoVisualizing the American Workforce as 100 People
-
Technology1 day agoNvidia Joins the Trillion Dollar Club
-
Commodities4 weeks agoCharted: Commodities vs Equity Valuations (1970–2023)
-
Batteries2 weeks agoHow EV Adoption Will Impact Oil Consumption (2015-2025P)
-
Money4 weeks agoVisualizing the Assets and Liabilities of U.S. Banks
-
Wealth2 weeks agoRanked: The World’s Top 50 Endowment Funds