Nvidia (NVDA -1.51%) is currently the world's largest company, with a market cap of about $5.3 trillion. While that may sound like too large a company to expect to market-beating returns from, I think it can keep delivering them. In fact, I think it could reach a market cap of $10 trillion relatively soon. And any stock that can nearly double in just over a year is well worth the investment.
So, how could Nvidia reach a $10 trillion market cap? Simple. It just needs to do what it says it will do.
Image source: Getty Images.
Nvidia is still the king of AI processors
Nvidia makes graphics processing units (GPUs) and additional equipment to support their usage in data centers and other computing applications. GPUs are parallel processors, which makes them fantastic at rapidly handling the types of computationally heavy workloads that AI software generates. GPUs are also flexible and universal, and almost every company in the artificial intelligence realm has workloads that were formatted to run on Nvidia processors.
NASDAQ: NVDA
Key Data Points
Right now, the world is still in a compute-constrained state, so clients are ordering new computing units well in advance of when they'll need them. This means Nvidia already has a great idea of what next year's demand will look like. During Nvidia's fiscal 2027 second-quarter conference call, CFO Colette Kress guided for 70% revenue growth for its fiscal 2028 (which ends in January 2028). That's an incredible figure, and far exceeds what Wall Street analysts were projecting.
But what does this mean for Nvidia stock? I think it means that the company should achieve enough growth to boost it to a $10 trillion market cap.
Wall Street analysts have a consistent track record of underprojecting Nvidia's growth, but we'll use their consensus estimates for its fiscal 2027 (which ends in January 2027) as our baseline. For the current fiscal year, they expect $411 billion in revenue on average. Nvidia's trailing 12-month profit margin is 64%, so we'll pencil in a 60% margin on its revenue for next year.
If Nvidia grows at a 70% clip from a $411 billion baseline and converts 60% of that into net income, that would result in nearly $700 billion in revenue and $419 billion in net income. That's right -- Nvidia's projected growth rate indicates that its net income next year will exceed this year's revenue. That's simply incredible.
With $419 billion in net income, Nvidia would only need to trade at 24 times earnings to reach a $10 trillion valuation. That's about where the S&P 500 (^GSPC -0.71%) trades on average, making this a realistic projection. Nvidia isn't done growing yet, and now is the time to scoop up shares.
