Nvidia (NVDA 0.53%) is the largest company in the world with a market cap of $4.4 trillion as of this writing. What's worth noting is that the semiconductor bellwether became the first $5 trillion company toward the end of October.
However, multiple concerns have been weighing down Nvidia since it hit a 52-week high on Oct. 29, the day it attained a $5 trillion market cap. Shares of the company are down 13% since then. That's a bit surprising, considering Nvidia's latest results were outstanding and its guidance showed that its growth isn't going to slow anytime soon.
Of course, investors are worried about the sustainability of the elevated levels of AI infrastructure spending apart from the huge circular deals that have created suspicions of the tech being in a bubble. Additionally, there are concerns about the real-world returns of the heavy investments in AI infrastructure.
These headwinds may lead investors to believe that Nvidia stock has topped out. However, don't be surprised to see the company hitting a $10 trillion market cap in 2030. Let's look at the reasons why.
Image source: Nvidia.
AI spending is delivering returns
Last year, market research company IDC projected AI could account for 3.5% of the global gross domestic product (GDP) by 2030, contributing a whopping $19.9 trillion to the world's economy. The market research company also added that "every new dollar spent on business-related AI solutions and services will generate $4.60 into the global economy, in terms of indirect and induced effects."
While 2030 is a few years away, there are tangible signs of companies benefiting from AI adoption. Palantir, for example, is witnessing remarkable demand for its Artificial Intelligence Platform (AIP), which enables its customers to integrate generative AI tools into their data and operations. Palantir customers have been deploying AIP through their entire operations following the initial deployment, driven by the efficiency gains and redundancy reductions they are witnessing.
On the other hand, Meta Platforms is serving more relevant content to users across its social media platforms thanks to AI. The "Magnificent Seven" company is also delivering improved returns to advertisers on their spending because of AI. Meanwhile, Amazon has been deploying AI-powered robots in its warehouses to reduce delivery times, which it believes will lead to lower costs for consumers.
Even smaller companies are bullish about AI. A recent survey of 2,000 small business owners by Goldman Sachs revealed that almost all of them using AI in their operations were witnessing a positive impact. Specifically, 85% of small business owners using AI reported a bump in productivity and efficiency, while 81% noted that the technology was supplementing their employees.
Now, the AI software and tools that are powering these productivity gains wouldn't be possible without the chips that Nvidia designs. The company controls an estimated 85% to 90% of the AI chip market, according to William Blair analysts. This explains why Nvidia's data center revenue of $51.2 billion in the previous quarter was in multiples of the combined AI revenue of $9.5 billion generated by AMD and Broadcom in their last reported quarters.
More importantly, Nvidia's AI chip momentum isn't going to fade. The company's guidance of $65 billion in revenue for the current quarter would be a 65% spike from the same quarter last year. That's a slight acceleration from the 62% revenue growth the company reported last quarter. Those numbers are better than what its competitors reported.
NASDAQ: NVDA
Key Data Points
AMD's data center revenue increased by just 22% from the year-ago period last quarter. Broadcom did better with a 63% increase in AI revenue to $5.2 billion, but that was lower than the 66% increase in Nvidia's data center revenue. Moreover, Nvidia achieved its growth on a much bigger scale. So, even though there is a probability of Nvidia losing ground in the AI chip market to AMD and Broadcom, that doesn't seem to be happening right now.
This is why Nvidia appears poised to reach a $10 trillion valuation in 2030.
Here's how Nvidia could become a $10 trillion company
Nvidia expects annual data center capital expenditures (capex) to land somewhere between $3 trillion and $4 trillion in 2030. That estimate can be corroborated by the projections that consulting firm McKinsey issued earlier this year. McKinsey estimates that a massive $6.7 trillion is likely to be spent on data centers by the end of the decade, $5.2 trillion of which will be allocated to AI.
With 60% of the data center capex allocated toward chips and computing hardware, according to McKinsey, there is a good chance of Nvidia's estimate turning out to be true. We have seen that Nvidia dominates the AI chip market by a big margin right now. But even if its market share were to slip in the next five years to 50%, and data center capex hits $3.5 trillion in 2030 (the midpoint of Nvidia's estimate), the company could generate more than $1 trillion in revenue (assuming 60% of that spending goes toward chips).
Nvidia currently trades at 23 times sales. So, even if it were to trade at a significantly discounted 10 times sales after five years, the possibility of this AI stock achieving a $10 trillion market cap in 2030 remains solid. That's why investors can continue holding shares of this semiconductor giant as they can more than double in the long run.
