Did Musk Just Reveal Why Nvidia Goes Higher?

Five years ago, Nvidia traded at $36 per share. It now hovers around $1,145 per share. At first glance, it’s hard to reconcile not only the price rise but the market capitalization. Nvidia trades at a valuation of $2.8 trillion. For comparison, Apple has a market cap of $2.9 trillion.

Apple generated $383 billion in revenues last year and reported net income of $96 billion. Nvidia reported “just” $60.9 billion in revenues and $29.7 billion in net income.

How can a company producing 6x more revenue and 3x more profits be worth about the same as the one generating so much less?

Growth is the simple answer and what we have uncovered is likely to truly shock you.

Key Points

• Nvidia’s projected 39.1% annual revenue growth and 32.2% net income growth over 5 years means its net income could reach $119 billion, nearly double Apple’s current level.
• In 5 years, Apple’s net income is likely to slightly eclipse Nvidia’s, which explains why their market caps are so similar now.
• Reports of high demand and supply constraints for Nvidia chips means Jensen Huang’s firm has pricing power that could drive valuation even higher.

Eye-Popping Growth

Apple is forecast to grow revenues over the next 5 years at a compounded annual growth rate of 7.6% while net income is predicted to rise by 6.1% annualized.

Nvidia, on the other hand, is expected to grow by 39.1% annualized over the next 5 years and net income by 32.2%. If it can do so net income will soar to twice the level that Apple currently reports. In short, net income should hit an enormous $119 billion.

Compare that to where Apple’s earnings are likely to be, which is $128 billion and you can see that the market capitalization of Nvidia, being slightly lower than Apple’s, is in fact largely justified. With 5-year net income slightly below the forecasted net income for Apple it’s no wonder that its market cap is just shy of Apple’s too.

But wait, there’s more, and Elon Musk may just have revealed why Nvidia could go even higher.

Can Nvidia Eclipse Apple?

CNBC reported that Elon Musk is directing Nvidia chips away from Tesla, where they are used for Full Service Driving training, to X and xAI, where he recently raised a massive funding round of $6 billion.

If true, it seems that Nvidia cannot produce enough chips to keep with demand and the fight for these chips is intense and likely to persist. If true, that means higher growth for longer because Nvidia’s already sky high prices for its flagship chip that sits in the $30,000 range, has pricing power.

In other words, demand is likely to persist for longer than forecast and Nvidia has the opportunity to further hike prices on its most sought after chips. If Jensen Huang decides to employ price hikes, expect Nvidia’s market capitalization to eclipse Apple’s because all the forecasts for revenue and net income are likely under-representing future reality.