Will NVIDIA Be The First To Hit $10 Trillion?

The plaudits NVIDIA receives seem to have no bounds but they also seem deserved when you look under the surface.

This is a company with a perfect Piotroski score of 9, suggesting rock solid fundamentals. It’s not a surprise, as a result, to discover that a full 30 analysts increased their earnings estimates for the company for the upcoming quarter.

One secret to NVIDIA’s success is its high gross margins, north of 75% most recently that facilitate high profitability.

But much of the good news is out on this chipmaker, so the question is can it keep going and will it be the first ever to hit a market capitalization of $10 trillion?

Key Points

• NVIDIA has perfect fundamentals and dominates the data center GPU market with a 95% share, driving AI advancements.
• NVIDIA’s revenue is forecast to rise by over 30% annually, suggesting early innings.
• Despite a PE of 53x, NVIDIA is seen as undervalued given that net income is expected to grow over 30% annually for the next five years

What Makes NVIDIA So Special?

When you hear Larry Ellison at Oracle talk about the minimum entry fee to play in the AI game being $100 billion, and you learn that much of that is going to NVIDIA, you have to ask the question, what is it about NVIDIA that is so special that all the top companies in the world flock to it to buy its semiconductor chips?

The short answer is NVIDIA has figured out how to build chips that perform calculations really, really quickly through parallel processing. What first began as an innovative technology to support gamers evolved to support massive compute power in data centers that in turn facilitates machine learning and generative AI.

In spite of the massive spend already, NVIDIA is perhaps just getting started if estimates are right by top tier banks that the economic impact of artificial intelligence is estimated to be $7 trillion.

For as long as I recall NVIDIA GPUs dominated the market and that hasn’t changed so all roads to AI are likely to pass through Jensen Huang’s firm. Literally all but about 5% of the data center GPU market is estimated to be NVIDIA’s while spending is forecast to virtually double to over $600 billion over the next 5 years according to Prescient and Strategic Intelligence Market Research.

With so many tailwinds, it’s a fool’s errand to bet against NVIDIA but is it smart to bet on a 3x from here to $10 trillion?

So, Can NVIDIA Hit $10 Trillion?

Two key stats reveal why NVIDIA is priced so highly now. First, revenue growth over the next 5 years is estimated to rise at a pace of 31.6% annually. Secondly, net income is expect to grow by 34.1% annually over that same time period.

There is a reason such rapid revenue growth is expected. NVIDIA simply cannot be easily dis-intermediated by competitors, not least because of its wide moat stemming from the CUDA software platform.

Now trading at a PE of 53x but with with such massive growth ahead, it’s hard to argue that NVIDIA is as expensive as it seems at first glance. Quite the contrary, it appears cheap relative to future earnings growth. Can it reach $10 trillion? Don’t bet against it. The path may be lined with volatility but the journey is likely to be higher.