A Tale of Two Megacaps: Diverging Performances of Nvidia and Tesla in the AI Era

At the start of 2022, Nvidia and Tesla were both priced as hypergrowth companies with lofty visions. Both had CEOs who had ambitious goals, hoping to transform their companies into more than just a computer graphics company or more than just an auto maker. Both had similar market caps--Tesla a shade above $1 trillion, Nvidia around $500 billion. One CEO promised transformational technologies over the next few years--no, by the end of the year. He promised that the company would grow at more than 50% CAGR for the foreseeable future. He promised that it would not make sense to buy products from a competitor because their product would appreciate in value over time. But none of those came true. The other CEO--Jensen Huang--did not actually make these idle boasts, but nonetheless delivered on those promises of his counterpart. Nvidia has been at the center of the biggest revolution in generations. It has grown TTM revenues at over 71.6% CAGR since the start of 2022, and thanks to expanding margins, an even more impressive 94.4% CAGR in operating income and 94.6% in net income. And the GeForce RTX 3090 consumer flagship released in 2022 at a launch price of $1499 still sells for about the same on the secondary market even though these cards are subject to heavy use. The story is partly evident by the diverging performance of their stock prices, but it becomes much more apparent when looking at their actual fundamental performances. To give a fair comparison that is not subject to distortions such as from Nvidia's investment gains in Intel, here is a plot of the difference in net income since 2022. At the beginning, Tesla actually had the stronger operating income and was still growing, while Nvidia actually saw collapsing fundamentals due to a combination of post-pandemic gaming collapse and the digital asset downturn. In CY2022 Q3, right before the release of GPT-3.5-Turbo, Tesla actually boasted 7 times the operating income of Nvidia. Today, the situation is more than reversed--for the most recent quarter, Nvidia had **160 times** the operating income of Tesla.