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On Its Way to $5 Trillion in 2025, Nvidia May Become the First Stock to Reach $4 Trillion in Value

June 12, 2024
minute read

The best way to describe Nvidia's founder and CEO, Jensen Huang, is that he has a deep passion for developing cutting-edge semiconductor chips, often outpacing any competition. This is evident from Nvidia’s long-standing dominance in 3D graphics chips for video games, as well as graphics chips for computers, tablets, and smartphones.

Nvidia is now best known for its advanced chips that can write their own code, with the latest being the Blackwell chip, which took over $2 billion to develop. Huang has announced that Nvidia will roll out a new generation AI chip annually until the end of this decade, by which time quantum computing is expected to revolutionize computer processing. Anticipating this, Nvidia has already introduced a quantum simulation platform for cloud providers.

Huang’s strategic foresight is comparable to a chess grandmaster's ability to anticipate future moves well ahead of their competitors. This visionary approach has kept Nvidia several steps ahead in the semiconductor industry. Having a brilliant engineer like Huang at the helm is crucial for Nvidia’s continued innovation and success. In contrast, Intel experienced a significant decline when it appointed non-engineer Paul Otellini as CEO from 2005 to 2013, losing its dominance in the PC market. This underscores the advantage of having seasoned engineers like Huang who can foresee industry trends and lead in developing innovative processors.

In the aftermath of its 10-for-1 stock split, Nvidia is poised to surpass Microsoft in market capitalization, potentially becoming the world’s largest public company. Nvidia’s market valuation is expected to exceed $4 trillion soon and could reach $5 trillion by 2025 with the introduction of the Blackwell chip’s successor.

Recent developments, including an agreement between the U.S. Justice Department and Federal Trade Commission on handling antitrust investigations into Nvidia, Microsoft, and OpenAI, are unlikely to derail the AI revolution significantly. While antitrust investigations can put downward pressure on stock prices, Nvidia’s monopoly status and Wall Street’s favor are strong counterbalances. Currently, Nvidia commands a monopoly premium of 34 times its forecasted earnings.

Analysts predict robust sales growth of $28.38 billion and annual earnings growth of 134.4% for Nvidia's current quarter. Over the past two months, analysts have revised their earnings estimates upwards by 17.2%, which usually precedes future earnings surprises. Nvidia has consistently exceeded analysts' consensus estimates by 9.5% to 29.2% over the past four quarters, making another earnings surprise likely.

These consistent earnings surprises have a positive impact, as they ease Nvidia’s price-earnings ratio and reduce the risk associated with its shares. Positive analyst revisions and earnings beats tend to increase trading volume, which decreases the stock’s standard deviation and enhances its risk-adjusted return outlook. Unlike many other high-flying stocks, Nvidia has the technical credentials to support its meteoric rise.

Moreover, Nvidia is known for raising analysts’ expectations following its earnings reports. This guidance strategy helps drive its market capitalization higher. Nvidia’s path to a $4 trillion and eventually $5 trillion market cap is simply a matter of continuing its earnings growth and maintaining high guidance.

As Nvidia continues its ascent, akin to a rocket facing less resistance at higher altitudes, it is expected to power through $4 trillion, $5 trillion, and beyond. This technical setup not only supports Nvidia reaching these valuations but also ensures their sustainability.

Nvidia's significant investment in next-generation generative-AI chips makes it increasingly difficult for competitors to keep up. Other AI chips under development are becoming relatively low-tech compared to Nvidia's deep learning and generative AI chips. Consequently, Nvidia is not only leading the U.S. stock market but is also standing alone as a dominant force in the industry.

Cathy Hills
Associate Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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