The popular narrative over the past few months is that demand for artificial intelligence (AI) is slowing, but the truth is much more nuanced. Faced with tough comps, some of the biggest players and early beneficiaries are experiencing decelerating growth rates, but the numbers are still off the charts in absolute terms.
Take Nvidia (NVDA +1.73%), for example. The company pioneered the graphics processing units (GPUs) that quickly became the foundation upon which AI training and inference are built. Demand remains strong for these AI-centric chips, but relative growth rate has slowed.
When the company reported its recent financial results, investors gave a collective shrug. However, putting the results in context reveals that Nvidia is on the fast track to earn a charter membership in the $10 trillion club. Let's take a look at the company's results and how it gets there from here.
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A broken record
Nvidia stock has been a windfall for patient investors. Those who bought in after the company's initial public offering (IPO) in early 1999 have notched total returns of 482,600%. Put another way, a $100 investment made 26 years ago is now worth $482,600 (as of this writing).
Some investors may dismiss this as ancient history, but consider this: Over the past 10 years, the stock has gained 31,770%. That same $100 investment made a decade ago would be worth $32,110 (including dividends). Much of its growth in recent years has been fueled by the broad adoption of AI.
During Nvidia's fiscal 2026 second quarter (ended July 27), the company delivered record-setting revenue that grew 56% year over year to $46.7 billion. This fueled adjusted earnings per share (EPS) of $1.05, which jumped 54%. Driving the results was a superb performance by the company's data center segment, which includes processors used for AI, data centers, and cloud computing. Revenue for the segment jumped 56% to $41.1 billion, almost entirely the result of demand for AI.
Bears will point to the 56% growth rate as a sign of impending doom. After all, it wasn't long ago that Nvidia was putting up year-over-year growth rates north of 100%.
Again, some context is in order. For the coming quarter, Nvidia is guiding for quarterly revenue of $54 billion, which is double what the company made in all of fiscal 2023. That's hardly a death knell.
There could be much more to come. CEO Jensen Huang said, "We see $3 trillion to $4 trillion in AI infrastructure spend by the end of the decade." As the principal supplier of the chips that underpin AI technology, the company is well-positioned to profit from this trend.
NASDAQ: NVDA
Key Data Points
The path to $10 trillion
Nvidia currently boasts a market cap of roughly $4.4 trillion (as of this writing). This means it will take stock price gains of 127% to drive its value to $10 trillion. According to Wall Street, Nvidia is on track to generate revenue of roughly $206 billion in fiscal 2026, resulting in a forward price-to-sales (P/S) ratio of 21. Assuming its P/S remains constant, Nvidia would need to grow its revenue to roughly $466 billion annually to support a $10 trillion market cap.
Wall Street is forecasting annual revenue growth of 23.6% for Nvidia over the coming five years. If the company can achieve that growth rate, it could reach a $10 trillion market cap as early as 2030.
But don't take my word for it. Ben Reitzes, managing director and head of tech at Melius Research, has run the numbers and believes that Nvidia can generate revenue of $600 billion annually by the end of the decade, predicting its stock will "double from here, if not more." He cites opportunities with emerging AI companies, data centers (beyond its current hyperscale customers), and sovereign AI as fueling Nvidia's growth between now and 2030.
Given the rapidly evolving AI landscape, I think Reitzes' premise is spot on.
It's important to remember that one of the biggest obstacles to life-changing gains in a stock like Nvidia is the volatility that is part of the price of admission. Its stratospheric rise in recent years has attracted plenty of fair-weather investors, many of whom will jump ship at the first signs of trouble, leading to even greater volatility. Any hint of slowing sales, and Nvidia stock could fall precipitously. On the bright side, investors with a five-to-10-year time horizon are less to be fazed by these movements.
Finally, Nvidia stock is currently selling for roughly 30 times next year's earnings. While some will point out that it's priced at a premium, I'd argue it's an attractive price for a company poised to generate double-digit sales and profit growth through the end of the decade.
