James Anderson may not be a household name, but there's no denying the legendary investor has made his mark. He spent more than two decades with the Scottish investment management firm Baillie Gifford, directing its premiere Scottish Mortgage Investment Trust and raking up gains of 1,700% in the process. He's now a managing partner at Lingotto Investment Management.
He made his name by spotting early and betting heavily on some of the tech sector's most iconic companies, including Amazon, Tesla, and Nvidia (NVDA -2.09%), among others. So when Anderson talks, investors would do well to listen.
Earlier this year, Anderson made a bold prognostication, saying that if the adoption of artificial intelligence (AI) continues at its current pace, Nvidia could be worth as much as $50 trillion 10 years from now. While that might seem a fantastical assertion at first glance, he makes a compelling case.
Let's take a look at the factors that could drive Nvidia's value to that unthinkable height.
Image source: Getty Images.
AI is driving this locomotive
There's no denying the impact AI has had on Nvidia's fortunes over the past couple of years, but it's worth reviewing recent history to provide some context. In just the past 12 months or so, the company's market cap has soared from $1.2 trillion to $3.2 trillion (as of this writing) -- adding $2 trillion to its value. This all came about because the company's most powerful graphics processing units (GPU) have become the gold standard for AI processing.
Nvidia's results have been phenomenal. It generated five consecutive quarters of triple-digit percentage growth before it inevitably ran up against tough comps. Despite that, in its fiscal 2025 third quarter (which ended Oct. 27), Nvidia still grew its revenues by 94% year over year to $35 billion. This resulted in its diluted earnings per share (EPS) soaring by 103% to $0.81.
During the first nine months of its fiscal 2025 (which ends in late January), Nvidia has generated revenue of $91 billion, and it's on track to surpass $129 billion for the year. Sales of that magnitude would have been unimaginable just a few years ago.
For example, the $35 billion in revenue Nvidia generated in its most recent quarter far eclipsed the $27 billion in sales it generated for all of its fiscal 2023.
Yet these monumental gains could be just the beginning. The AI market could conceivably be worth $15.7 trillion by 2030, according to analysts at PwC, who also noted that "AI is still at a very early stage." If Nvidia reaps just a sliver of that addressable market, its sales and profits could continue to soar.
Anderson suggests that demand for AI chips used in data centers -- where most AI processing takes place -- is currently increasing by about 60% annually. Assuming that this growth continues at the same pace, and that Nvidia is able to maintain its profit margins over the course of a decade, in 20234, that would give it an EPS of $1,350. At that point, Nvidia would be worth about $20,000 per share, translating to a market cap of roughly $49 trillion, according to Anderson.
Another advantage
There's no denying that Amazon and Tesla have both been extraordinarily profitable investments. Amazon stock has gained 229,200% since its IPO, while Tesla is up more than 27,000%. Anderson notes, however, that these opportunities were different because these companies "didn't start from highly profitable and dominant positions but had to get there."
There's no denying Nvidia's dominance. It still has the leading share of the gaming chips market that started it all. In the calendar third quarter, Nvidia's share of the desktop GPU market climbed to 90%, as its graphics cards remain the go-to choice for gamers everywhere.
Nvidia also dominates the data center space. The company boasted a 98% market share in data center GPUs in both 2022 and 2023. While most expect its share price to moderate in 2024 in the face of increasing competition in the AI chip segment, it's still expected to be the undisputed market leader.
Its market dominance aside, there are other reasons Anderson is bullish on Nvidia. The company's "persistent exponential progress, the competitive advantages in hardware and software, and the culture and leadership are exactly what we look for," he noted.
Is a $50 trillion market cap even possible?
It's worth running the numbers to see what it would take for Nvidia to reach a value of $50 trillion, as unlikely as it might be. Nvidia currently has a market cap of roughly $3.2 trillion, so it would take a stock price gain of 1,458% to drive its value to $50 trillion.
Wall Street expects Nvidia to generate revenue of roughly $129 billion in its fiscal 2025, giving it a forward price-to-sales (P/S) ratio of about 25. Assuming its P/S remains constant, Nvidia would need to grow its revenue to roughly $2 trillion annually to support a $50 trillion market cap. Wall Street is predicting revenue of $195 billion next year. Using that as a starting point, Nvidia would have to grow its revenue by 35% annually until 2034 to generate revenue of $2 trillion. While that's a high bar, it's certainly possible.
Image source: Getty Images.
Fun with math aside, there is a long list of potential issues that could derail Nvidia on its unlikely path to $50 trillion:
- Widespread AI adoption fails to materialize.
- Significant competition emerges, reducing Nvidia's market share.
- Nvidia suffers another innovation stumble.
- A black swan event occurs.
- An economic deterioration occurs.
- Supplier disagreements or defections impede its production.
There are many more potential roadblocks, but you get the picture.
We might be asking the wrong question
Anderson was very clear to point out (italics mine), "This isn't a prediction but a possibility if artificial intelligence works for customers and Nvidia's lead is intact." He went on to note that the probability of the company reaching that lofty height was (in his view) a fairly slim 10% to 15%.
Yet Anderson remains focused on the big picture. "It is the long duration of the development of [GPU] usage in AI -- and not just AI -- from excitement, through potential pauses, to transformation of industries that is most important to us," Anderson noted.
There's the matter of Nvidia's valuation, which is frankly complicated. It's currently trading for 51 times earnings. That seems expensive at first glance, but trailing valuations rarely keep up with high-growth stocks. For example, Nvidia's average P/E multiple over the past decade is 59, which suggests the stock is historically cheap now. Furthermore, Nvidia is also trading at roughly 29 times next year's expected earnings, which is an attractive price relative to the opportunity.
Asking whether Nvidia could hit $50 trillion might be the wrong question. Rather, investors should be asking themselves whether they should invest in an industry leader with a long track record of innovation, that is being driven by once-in-a-generation secular tailwinds, especially if they can buy the stock at a reasonable price.
Based on those criteria, Nvidia is definitely a buy.
