Editor's note: This article has been corrected. Wall Street analysts are forecasting revenue growth for Nvidia of 20% annually over the next five years.
The Nasdaq Composite (^IXIC 0.93%) has been riding high for more than two years now, as waning inflation, the prospect of lower interest rates, and the emergence of artificial intelligence (AI) helped fuel its impressive gains. In fact, since the bull market began in late 2022, the tech-centric index climbed as much as 95% before the recent market swoon.
Since its peak in December, however, the Nasdaq has dipped into correction territory, falling more than 10% from its recent high. While moves of that magnitude can be unnerving, they also provide astute investors with the opportunity to pick up quality stocks at a discounted price.
One such stock is Nvidia (NVDA 1.56%). The company has become the de facto poster child for the AI revolution, which pushed its stock to new heights, gaining as much as 965% in just over two years. However, fears about the pace of AI adoption, geopolitical concerns, and economic headwinds have weighed on Nvidia, which is down 28% from its peak (as of this writing).
But there's good news. Looking beyond the current weakness, Nvidia has the potential to become the world's first $20 trillion company, which would represent additional upside of more than 600%, according to one Wall Street analyst.
Image source: Getty Images.
A side of chips
Nvidia pioneered the graphics processing unit (GPU) in 1999, revolutionizing the video game space. What set GPUs apart from existing technology was parallel processing, or the ability to conduct a multitude of mathematical computations simultaneously. By breaking up computationally intensive tasks into smaller bits, they can be accomplished much more quickly.
Nvidia quickly discovered that this breakthrough in technology could be used to speed up other applications, and its state-of-the-art chips quickly became the gold standard for high-performance computing (HPC), data centers, cloud computing, and -- most recently -- AI processing.
Furthermore, there's more to Nvidia's GPUs than meets the eye. The company's Compute Unified Device Architecture (CUDA) programming platform and software architecture aids developers in getting the most out of the GPU. Nvidia provides more than 400 libraries that help developers "build, optimize, deploy, and scale applications across PCs, workstations, the cloud, and supercomputers using the CUDA platform," according to the company. This ability to tap into the full power of the GPU has made it the top choice for a generation of developers, making it the industry standard in the process.
Since CUDA is so deeply ingrained in the computing industry, it's the odds-on favorite to continue.
The road to $20 trillion
Nvidia currently sports a market cap of roughly $2.62 trillion, which implies stock price gains of 664% to drive its value to $20 trillion. According to Wall Street, Nvidia is poised to generate revenue of nearly $204 billion in fiscal 2026, giving it a forward price-to-sales (P/S) ratio of roughly 13. Assuming its P/S remains constant, Nvidia would need to grow its revenue to roughly $1.5 trillion annually to support a $20 trillion market cap.
Wall Street is currently forecasting revenue growth for Nvidia of 20% annually over the next five years. If the company maintained that growth rate, the earliest it could achieve a $20 trillion market cap would be 2038. To be clear, however, quite a few stars would have to align for Nvidia to reach this threshold, and to be honest, I think it's a long shot.
NASDAQ: NVDA
Key Data Points
A bullish take
One Wall Street analyst is among Nvidia's biggest bulls. Phil Panaro, founder and former CEO of Boston Consulting Group Platinion, argues, "I believe Nvidia will hit $800 by 2030." That works out to a market cap of $19.52 trillion, or just short of $20 trillion.
The analyst lays out three factors that he believes will drive Nvidia's market cap above that lofty threshold:
- The adoption of AI is currently "less than 1%," according to Panaro. It will only take low- to mid-single-digit penetration to push Nvidia's value up sixfold.
- Panaro estimates businesses will spend about $10 trillion between now and 2030 to convert to Web 3 -- the next-generation internet founded on blockchain. With only about $1 trillion spent to date, that represents a $9 trillion data center opportunity for Nvidia.
- The Department of Government Efficiency (DOGE) has been tasked with finding and eliminating waste, which could "reinvent how government is managed and delivered," according to Panaro. One example he cited is the creation of "digital twins" for government infrastructure, which could be used to increase efficiency and eliminate waste.
Panaro believes that this trifecta of opportunities will underpin the revenue growth needed to support a $20 trillion market cap for Nvidia.
Volatility could hamper its growth
While that analyst's case is intriguing, the current market conditions could hamper Nvidia's progress.
To be clear, I'm a long-term Nvidia investor, and the stock makes up 10% of my portfolio, making it my third-largest position. I have no doubt that Nvidia will continue to thrive, but I am equally sure the road ahead will have challenges.
Nvidia has followed the broader market lower as questions about inflation, consumer demand, geopolitical issues, and the rate of AI adoption linger. If these conditions persist, the market -- and Nvidia -- could have further to fall. As recently as 2022 Nvidia stock plunged 66% during the economic downturn -- which sent many fair-weather investors running for cover.
This helps illustrate the point that Nvidia stock is volatile and isn't for the faint of heart. Investors will need to steel themselves to ride out the inevitable peaks and valleys that are part of the cost of admission for a stock that could be a potentially life-changing investment.
Yet the current decline in the Nasdaq represents a compelling opportunity for investors who have been waiting for Nvidia to go on sale. The stock is currently trading for less than 24 times forward earnings (as of this writing), which is an attractive price to pay for a company with such a vast opportunity ahead.
So, while it may not get to $20 trillion over the next few years, I have little doubt that Nvidia stock will crush the market going forward.
