Nvidia (NVDA +0.44%) has become an iconic company over the years, with its chips playing an integral role in the build-out taking place in the tech sector, as businesses invest heavily in artificial intelligence (AI). At around $5.5 trillion in market cap, it's easily the most valuable publicly traded stock.
Over the past 12 months, the stock has risen by 25%, as growth investors don't appear concerned about its valuation. The company has continued to grow at a high rate, and it's arguably not all that expensive based on earnings. With much more growth still on the horizon and tech spending not appearing to slow down, could Nvidia hit a $10 trillion valuation by 2030?
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Why the stock may still have plenty more runway left
It's not hard to make the case as to why Nvidia may be a good buy, given its recent results. When it last reported earnings in May, its growth rate was an incredible 85% for the period ending April 26. Its net income for the quarter totaled $58 billion, representing more than 71% of revenue. Its profit was also more than the revenue it generated in the prior-year period: $44 billion.
Given the company's fantastic results and tech businesses' continued heavy spending on AI and reliance on Nvidia's chips, it's entirely conceivable that the tech stock could rise further. While it may look expensive based on its market cap alone, the stock itself isn't obscenely valued, as it's trading at a forward price-to-earnings multiple of 26, based on analyst projections for how it will do in the year ahead. Although that is higher than the S&P 500 average of 21, a premium is certainly warranted for one of the best growth stocks in the market these days.
NASDAQ: NVDA
Key Data Points
Can Nvidia hit $10 trillion in market cap by 2030?
For Nvidia's stock to reach $10 trillion, it would need to rise by approximately 82% from its current valuation. Over a four-year period, that averages out to a compounded annual growth rate of around 16%.
That might not seem all that unreasonable, but investors should also consider that the market is at record highs and that the S&P 500 has delivered above-average gains for multiple years. A slowdown may be overdue, and it may be a bit optimistic to assume Nvidia's gains and growth will remain high for another four years, which is why I don't think it is likely to hit $10 trillion by 2030. But given its dominance in the sector, I still think Nvidia can make for a good long-term investment.
