Nvidia is carrying the stock market this year, and one analyst thinks the semiconductor company will be worth $10 trillion by 2030.
The S&P 500has rolled through 31 record highs while advancing 15% this year. Much of that upward momentum can be traced to semiconductor company Nvidia (NVDA -0.03%), the hottest stock-split stock on Wall Street due to its dominance in artificial intelligence (AI) infrastructure and its expanding purview across the AI economy.
Nvidia shares have surged 155% year to date, such that the chipmaker alone has contributed nearly one-third of the gains in the S&P 500. According to S&P Global analyst Howard Silverblatt, not since IBM in the 1980s has a single company had such influence over the index.
Nvidia's market capitalization is $3.1 trillion, making it the third-largest company in the world. But I/O Fund analyst Beth Kendig thinks the chipmaker will be worth $10 trillion by 2030.That prediction implies about 220% upside, and it carries weight because Kendig has an impressive track record where Nvidia is concerned.
In 2021, she predicted Nvidia would surpass Apple's market capitalization within five years by monetizing AI. It took only three years. In fact, Nvidia briefly became the most valuable company in the world last week.
Could the chipmaker be worth $10 trillion by 2030?
The bull case behind Nvidia's $10 trillion target
Nvidia graphics processing units (GPUs) are the standard-bearer in data center accelerators, especially where AI is concerned. Analysts at Forrester Research recently wrote, "Nvidia sets the pace for AI infrastructure worldwide. Without Nvidia's GPUs, modern AI wouldn't be possible." The company holds more than 90% market share in data center GPUs and more than 80% market share in AI chips.
However, Nvidia is truly formidable because it offers a full-stack accelerated computing solution that comprises hardware, software, and services. Technology analyst Beth Kendig highlighted that advantage in Forbes. "We believe Nvidia will reach a $10 trillion market cap by 2030 or sooner through a rapid product roadmap, [its] impenetrable moat from the CUDA software platform, and due to being an AI systems company that provides components well beyond GPUs, including networking and software."
To elaborate, CUDA is a programming language that lets developers write applications for GPUs. The CUDA ecosystem includes hundreds of software libraries and frameworks (application building blocks) that support workflows across data analytics, AI, and scientific computing. CUDA runs only on Nvidia GPUs, and it supports the company's other subscription software and cloud services.
For instance, Nvidia AI Enterprise is a software platform that simplifies the development of AI applications across various use cases, like recommender systems, conversational assistants, cybersecurity threat detection, and autonomous machines. Similarly, DGX Cloud brings together supercomputing infrastructure, AI software, and pretrained models in a complete solution for developers.
That full-stack product strategy affords Nvidia a durable economic moat. Its GPUs consistently outperform products from competitors at industry-standard benchmarks called the MLPerfs, and its CUDA platform is the most extensive ecosystem of supporting software for developers. Put differently, Nvidia chips are superior in terms of both performance and convenience.
Additionally, Nvidia has expanded its hardware portfolio in recent years to include central processing units (CPUs) and networking platforms purpose-built for AI. Argus analyst Jim Kelleher recently commented, "In our view, Nvidia stands out because it participates in so many parts of the dynamic AI economy."
In short, Nvidia has positioned itself as a one-stop shop for AI, and that bodes well for shareholders. Grand View Research estimates that AI sales across hardware, software, and services will increase by 37% annually through 2030. Nvidia is well positioned to ride that wave to a greater valuation, perhaps even $10 trillion.
Nvidia stock trades at a tolerable valuation
Wall Street analysts expect Nvidia to grow earnings per share at 33% to $4.95 by fiscal 2028 (ends January 2029). If that consensus estimate is divided into its current price-to-earnings ratio of 74 times earnings, the result is a tolerable price/earnings-to-growth (PEG) ratio of 2.2. That is well below the three-year average of 3.2.
Looking forward, if Nvidia sustains earnings growth of 33% annually through fiscal 2030 (ends January 2031), its market capitalization will exceed $10 trillion if shares trade at 46 times earnings. That scenario is plausible, but the bar is very high. To achieve that outcome, Nvidia would not only need to maintain its leadership in AI processors but also continue expanding its influence in other areas of the AI economy.
However, even if Nvidia fails to reach that milestone within the specified time period, the stock could still beat the market over the next three to five years. Patient, risk-tolerant investors should consider buying a very small position today.
Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Apple, Nvidia, and S&P Global. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.
