Artificial intelligence (AI) has been around in some form or another for more than five decades. However, the advent of generative AI early last year took the technology to the next level. These constantly improving and self-learning algorithms have the potential to streamline and automate many time-consuming tasks. Experts believe the resulting boost in productivity and efficiency will usher in the "fourth industrial revolution."
Arguably, the biggest beneficiary thus far has been Nvidia (NVDA -2.09%). The company pioneered the graphics processing units (GPUs) that originally rendered lifelike images in video games. These chips delivered the horsepower needed for this computationally intensive task. GPUs proved equally adept at powering AI, sending Nvidia into the stratosphere. The stock has gained more than 800% since early last year, leaving some investors to wonder if its simply too late to buy.
Fear not, for Nvidia has what it takes to be the world's first $20 trillion company, at least according to one Wall Street analyst. That implies additional upside for the stock of nearly 500% from its current level. Is that realistic?
Below, I'll outline Nvidia's path to success and what could drive the stock to these admittedly lofty heights.
Image source: Getty Images.
A chip off the old block
When Nvidia introduced the GPU in 1999, the secret to its success was parallel processing, which can conduct a multitude of mathematical computations simultaneously. This involves using various processor cores to work on different parts of a computationally intensive task, thereby completing it much more quickly. Nvidia soon applied this same process to handling AI, ushering the technology into the 21st century.
While Nvidia's GPUs stole the spotlight, there's much more to its success than just the processor itself. The company developed the Compute Unified Device Architecture (CUDA), a software architecture and programming platform that helps developers speed up applications by tapping into the power of the GPU. An entire generation of developers uses this software ecosystem, which has become the industry standard. Nvidia offers over 400 libraries that help developers "build, optimize, deploy, and scale applications across PCs, workstations, the cloud, and supercomputers using the CUDA platform."
Nvidia's chips are the gold standard across numerous use cases, including gaming, cloud computing, machine learning (an earlier branch of AI), and data centers. Additionally, CUDA is deeply entrenched in the computing industry. That combination creates a moat that's hard to beat.
The path to $20 trillion
Nvidia currently sports a market cap of roughly $3.63 trillion. That means it would take stock price gains of 495% to drive its value to $20 trillion. According to Wall Street, Nvidia is poised to generate revenue of nearly $129 billion in fiscal 2025, giving it a forward price-to-sales (P/S) ratio of roughly 26. Assuming its P/S remains constant, Nvidia would need to grow its revenue to roughly $768 billion annually to support a $20 trillion market cap.
Wall Street is currently forecasting revenue growth of 50% annually over the next five years for Nvidia. If the company can maintain its robust growth rate, it could actually achieve a $20 trillion market cap by 2030. While that might seem ambitious, if we've learned anything over the past couple of years, it's that AI adoption can certainly surprise to the upside. I think a lot of things would have to go right for Nvidia to hit this benchmark, and I have to admit -- it might be a stretch to keep up that growth rate for five years.
A bullish take
However, there's one Wall Street analyst who's pounding the table. Phil Panaro, founder and former CEO of Boston Consulting Group Platinion, said categorically, "I believe Nvidia will hit $800 by 2030." That would result in a market cap of $19.59 trillion, or about $20 trillion.
The analyst cites three drivers that could push Nvidia over the $20 trillion finish line:
- AI penetration is currently "less than 1%," according to Panaro. As the industry standard for AI, a few additional percentage points of AI adoption could help Nvidia quintuple its current value.
- It's estimated the transition to Web 3 -- an online system backed by blockchain -- will cost roughly $10 trillion by 2030. With less than $1 trillion spent thus far, that represents an additional $9 trillion opportunity. Since blockchain depends on GPUs, adopting the transition benefits Nvidia.
- The proposed Department of Government Efficiency will be tasked with finding and eliminating waste in government. This could "reinvent how government is managed and delivered," according to Panaro. One potential application would be the creation of "digital twins" for government infrastructure as a way to find waste and increase efficiency. Since GPUs power the metaverse and digital twins, this too benefits Nvidia.
The rapid adoption of AI, the transition to Web 3, and potential uses by the U.S. government add up to a massive opportunity, one that Panaro believes will support the 50% annual revenue growth necessary to support a $20 trillion market cap.
The twin hurdles of time and volatility
The analyst lays out a compelling case, but it ignores the harsh reality of the real world. Don't get me wrong; I've been a Nvidia investor for years, and the chipmaker is my second largest position, accounting for 11% of my portfolio -- so I'm rooting for the company to win. I also know the path ahead will be rocky.
Remember last summer when Nvidia stock lost 27% of its value in just six weeks, as news reports suggested the release of its next-generation Blackwell chip might be delayed? It ultimately turned out to be much ado about nothing, and the stock ultimately climbed to new heights. Nvidia also suffered a 66% decline a little more than two years ago -- during the economic downturn -- shaking loose many fair-weather investors. Nvidia stock isn't for the faint of heart, so investors should be prepared to hold for the long term and have the fortitude to ride out the tumultuous ups and downs that are part of the cost of admission.
Nvidia is currently trading for roughly 31 times earnings for its fiscal 2026 (which begins in January). While that's a slight premium, I'd suggest it's an attractive price to pay for a company with so much potential.
That's why Nvidia is a buy.
