A prominent technology investor predicted this NVIDIA Corp. NVDA could reach a market capitalization of nearly $50 trillion within the next decade.
what happened: James Andersonan early investor in the company as Tesla Inc TSLA AND Amazon.com Inc AMZN, expressed his bullish view of Nvidia’s future potential, the Financial Times reported on Sunday. He suggested the chip maker’s market cap could exceed the combined value of the current S&P 500.
Anderson’s optimism stems from Nvidia’s role in growing demand for AI chips, which are essential for training and running advanced generative AI models. That demand has sent Nvidia shares up 168% since the start of the year, pushing its market value above $3 trillion.
“Nvidia’s potential scale in the most optimistic outcome is much higher than I’ve ever seen before and could lead to a market value in the double-digit trillions. This is not a prediction, but a possibility if AI works for customers and Nvidia’s direction is intact,” Anderson said.
For context, Anderson’s prediction of Nvidia reaching a market capitalization of $50 trillion would be nearly twice the current US gross domestic product (GDP), which stands at $27.36 trillion, or nearly three times more than China’s GDP of $17.79 trillion, according to the data. from the World Bank.
Despite this tremendous growth, Anderson sees Nvidia’s potential as even greater, provided AI continues to deliver for customers and Nvidia maintains its industry leadership.
Anderson, who now runs a $650 million fund in Lingotto Investment Managementbelieves that “Nvidia’s continued exponential progress, competitive advantages in hardware and software, and culture and leadership are exactly what we are looking for.”
He also acknowledged that the path to that potential valuation would be volatile, with potential pullbacks of 35-40%. However, he expressed confidence in Nvidia’s long-term prospects, stating that the company is at the forefront of solving serious problems in areas such as autonomous driving, robotics and drug detection.
Anderson predicted that current demand growth for data center AI chips was currently around 60% per year. Looking ahead over the next decade, he estimated that sustained 60% growth in data center revenue alone, with flat margins, could lead to earnings of $1,350 per share and free cash flow of around 1,000 dollars per share.
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Assuming a 5% free cash flow yield, this analysis suggests that Nvidia stock could potentially be valued at $20,000 in 10 years, implying a market capitalization of $49 trillion. Anderson assigned a 10-15% probability of achieving this scenario, according to the report.
Why does it matter?: Anderson’s prediction comes amid a broader context of excitement and caution in the market. The US stock market has experienced a significant rally, largely driven by the promise of AI. This growth has drawn comparisons to the dot-com bubble of the late 1990s, with the S&P 500 hitting record highs and the Nasdaq Composite up 70% since the end of 2022.
However, not everyone is optimistic. Craig Johnsona managing director and chief technical officer of the market at Piper Sandlerhas noted “warning flags” in the market, suggesting that Nvidia may be in “bubble territory” and hinting at a possible market pullback.
even Cathie WoodCEO of ARK Investhas acknowledged Nvidia’s outstanding performance, but predicts “short-term upset” for the company’s business as customers reevaluate their AI strategies.
Despite these concerns, some analysts remain Bulgarian. Ray Wangfounder of Astrology researchhas a $200 price target on Nvidia stock, citing the company’s leading role in the AI space.
Anderson rose to prominence during his nearly four-decade tenure at the Baillie Gifford. He oversaw its foundation of Scottish mortgage investment funds, which first invested in Nvidia in 2016. His leadership played a key role in transforming the Edinburgh-based private partnership into an unexpected standout in the technology investment sector.
Price action: Nvidia last closed at $129.28, marking a gain of 1.47% for the day. In after-hours trading, the stock was up 0.48%. Year-to-date, Nvidia has seen a significant increase of 168.37%, according to data from Benzinga Pro.
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This story was created using Benzinga Neuro and edited by Kaustubh Bagalkote