Can Nvidia Really Become a $50 Trillion Company?

Nvidia‘s (NVDA -0.77%) stunning rally since the beginning of 2023 has made it one of the most valuable companies in the world, with a market capitalization of $3 trillion. The graphics-card specialist is now the third-most-valuable company globally, but an early investor in Amazon and Tesla believes that Nvidia still has lots of room for growth.

Tech investor James Anderson, who was a former partner at investment management firm Baillie Gifford, believes that there’s a 10% to 15% probability of Nvidia’s market cap jumping to a whopping $49 trillion in the next 10 years. That’s a very ambitious forecast, given that the overall market cap of companies in the S&P 500 index stands at just over $46.5 trillion.

Let’s see why Anderson believes that a market cap of almost $50 trillion could be a possibility for Nvidia, and check if there could be even a slim chance of this possibility turning into reality.

Will AI be enough to help Nvidia become a $50 trillion company?

Anderson’s $50 trillion market-cap estimate is based on Nvidia’s data center revenue growing at 60% over the next decade. In fiscal 2024 (which ended in January this year), Nvidia’s data center revenue shot up 217% year over year to $47.5 billion on the back of the booming demand for its artificial intelligence (AI) chips. Applying a 60% annual growth rate to that number over the next decade would pin Nvidia’s data center revenue at a whopping $5.2 trillion in fiscal 2034.

Hitting a $50 trillion market cap, based on the data center segment’s revenue alone, would mean that Nvidia would have to trade at around 10x sales at that time. That would be a discount to the company’s current price-to-sales ratio of 37, indicating that Nvidia could attain the impressive market cap that Anderson is forecasting even if it trades at a significant discount after 10 years.

However, achieving $5 trillion in data center revenue on the basis of the AI chip market alone doesn’t seem even remotely possible. That’s because the market for AI chips is expected to generate $257 billion in revenue in 2033, even after clocking a healthy compound annual growth rate (CAGR) of 24%. Nvidia’s data center business benefited from the surging demand for AI chips, a market where it’s the leading player with a market share of over 90%.

Even if Nvidia continues to exercise such dominant control in this market, it’s unlikely that its data center business will become big enough in the long run to help it achieve a $50 trillion market cap. What’s more, Nvidia estimated that its total addressable market stood at $1 trillion a couple of years ago. Assuming it can corner all of that end-market opportunity in the next decade and trades at 8x sales in 2034, in line with the U.S. technology sector’s average, its market cap may hit $8 trillion, at most.

Achieving Anderson’s market-cap estimate seems like an impossibility for Nvidia (at least for now). At the same time, however, we shouldn’t ignore the fact that the semiconductor giant’s huge addressable market means it could end up delivering significant upside in the future.

Why Nvidia still remains a solid investment

Nvidia’s revenue during the trailing 12 months stands at just under $80 billion. So the total addressable market that the company is sitting on suggests it hasn’t scratched even 10% of its revenue opportunity. Also, I mentioned earlier that the AI chip market that Nvidia dominates is set for robust growth over the next decade.

However, this is just one of many lucrative growth opportunities for Nvidia. Fast-growing markets such as AI computers, digital twins, and connected cars are additional growth drivers that could help the company sustain its impressive growth in the future. All this explains why analysts are expecting Nvidia to achieve a healthy earnings-growth rate of 46% for the next five years.

However, there’s a good chance that it could exceed those expectations, considering its impressive share in the AI GPU and the gaming GPU markets, which gives Nvidia the ability to command stronger prices. Moreover, Nvidia is undervalued with respect to the growth that it’s forecast to deliver. That’s why investors looking to buy a growth stock can still consider buying this chipmaker, as it seems built for robust long-term upside even if it doesn’t hit the lofty $50 trillion market cap in the long run, as Anderson predicts.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Nvidia, and Tesla. The Motley Fool has a disclosure policy.