Nvidia’s rise has been astronomical, with its market cap growing from $1.1 trillion to $3.1 trillion in the past 12 months. One tech investor who predicted the early success of Amazon and Tesla said this is just the beginning.
“The potential size of Nvidia in the most optimistic outcome is much larger than I have ever seen before and could lead to a market cap in the double digits in the trillions,” James Anderson, a former partner at investment giant Baillie Gifford, told the Financial Times“This is not a prediction, but a possibility if artificial intelligence works for customers and Nvidia’s lead is intact.”
The chipmaker behind OpenAI’s ChatGPT has risen dramatically on the AI boom, which has created half a million new millionaires who have invested in the technology that has begun to revolutionize the workplace and media consumption. Nvidia, along with tech giants Amazon, Google, Microsoft and Apple, are worth $14.5 trillion and make up about 32% of the S&P 500. With the AI darling’s data center revenue growing at about 60%, Anderson calculated, the company would have a market cap of about $49 trillion if this pattern continues over the next decade. That’s more than the total value of every company in the S&P 500, which is about $45.84 trillion. Anderson estimated a 10% to 15% probability of that outcome.
Anderson’s prediction is a grandiose one, but his suspicions have proven correct before. With a go-big-or-go-home mentality, he was a leading advocate for Amazon and Tesla (Anderson’s investments in the EV giant were the second-largest after CEO Elon Musk’s). From 2005 to 2021, Scottish Mortgage Investment Trust, managed by Baillie Gifford, returned 2,240%. It invested in Nvidia in 2016. Lingotto Investment Management, where Anderson is now an investor, has a $650 million fund with Nvidia as its largest position.
Nvidia didn’t have a clear path to success when Anderson first started investing in the company, he said. It was a question of whether it would become a gaming, crypto or AI company. But it did have the advantage of early success, unlike Amazon and Tesla, which “didn’t start out in highly profitable and dominant positions, but had to get there.” In some ways, Anderson still sees Nvidia as a nimble company.
“It is the long duration of the development of [graphic processing units] “It’s about using AI – and not just AI – from excitement, through potential pauses, to transforming the industries that matter most to us,” Anderson said.
Not so fast
Other financial experts don’t share Anderson’s bullish view of Nvidia. Aswath Damodaran, a professor of finance at New York University’s Stern School of Business, argues that Nvidia is riding a wave of early AI optimism.
“The momentum is clearly with Nvidia,” Damodaran told CNBC in May. “They can do no wrong. Everything they touch turns to gold.”
Damodaran said Tesla experienced a similar rally in 2020, when its market cap skyrocketed to peak at $1.2 trillion in 2021, only to see shares fall about 30% this year alone. Meta and Google have also struggled as increased competition has loosened their grip on the tech world. While Nvidia has the profits to support its sky-high valuation, expectations for the company’s future may be too high, he argued. Damodaran said the AI chip market alone isn’t worth $1 trillion, and the broader AI market is worth about $2 trillion or $3 trillion, meaning Nvidia would have to tap into several large AI markets to maintain and grow its value.
“It’s clearly a possibility,” Damodaran said. “But is it plausible? I don’t think so.”
It’s too early to tell whether Nvidia has the power to lead Big Tech to the AI frontier in the long term, said Doug Clinton, managing partner at Deepwater Asset Management. Nvidia’s colossal growth may seem scary, but it’s sustainable, especially as demand for AI is expected to rise.
“Even though we’re all concerned that demand for chips will eventually decline, we haven’t really seen that decline yet,” Clinton told Yahoo Finance last month. “And it may take longer to decline than we think.”
According to Clinton, since Nvidia represents more than 80% of the global GPU semiconductor market, it is likely that the company will continue to be successful in the near future.
“Can Nvidia maintain its dominant position by providing the brains to these artificial intelligence models?” he said. “I think they can do that in the next three to five years.”