Jim Cramer is one of the most well-known names in finance. Some investors may know him as the founder of Cramer Berkowitz, a hedge fund that generated 24% annualized returns over 14 years. Others may know him as the hilarious host on CNBC. Secret savingsHe always ends each show with the catchphrase, “There's always a bull market somewhere.”
In 2021, Kramer NVIDIA Cramer visited Amazon.com Inc. (NASDAQ:NVDA) headquarters in Silicon Valley, where his conversation with visionary CEO Jensen Huang covered everything from self-driving car technology to Omniverse, a simulation engine for training AI-powered robots. Cramer came away from the experience with a bold prediction: This could be a $10 trillion stock.
Interestingly, Cramer isn't the only analyst to have proposed this idea. In June, just before Nvidia completed its 10-for-1 stock split, I/O Fund's Beth Kendig wrote: Forbes Nvidia has argued that it could be a $10 trillion company by 2030, citing the rapid development of new AI chips, the enduring economic barrier provided by the Compute Unified Device Architecture (CUDA), and its participation in other sectors of the AI economy, such as networking and software.
Nvidia is currently valued at $2.76 trillion, so if Cramer and Kendig are correct in predicting the company's valuation will reach $10 trillion, the potential upside would be about 260%. Here's what investors need to know:
Nvidia has a nearly unbeatable competitive advantage in AI computing
Nvidia is a full-stack accelerated computing company best known for its graphics processing units (GPUs). These chips accelerate compute-intensive datacenter workloads such as scientific simulations and artificial intelligence (AI), and dominate the market. It is estimated that Nvidia will account for 98% of GPU shipments in 2023, with market share of AI processors exceeding 80%.
One reason Nvidia has been so successful is because of its superior chips: its GPUs are faster than processors from other semiconductor companies, and Nvidia consistently achieves record-breaking results in the MLPerf benchmark, the industry-standard test that measures the performance of AI systems. Forrester Research I recently wrote that “without Nvidia GPUs, modern AI would not be possible.”
Another reason Nvidia has been so successful is CUDA, a vast ecosystem of software libraries and tools that streamline the development of GPU-accelerated applications in a variety of domains, from machine learning to computational chemistry. The breadth of the CUDA ecosystem has made Nvidia the de facto go-to platform. [for] According to the AI developer, The Wall Street Journal.
Taken together, Nvidia has the fastest AI accelerators and the most comprehensive supporting software ecosystem. These attributes alone give the company a virtually unbreakable economic advantage, but Nvidia further strengthens its leadership in AI computing with a full-stack strategy. The company's portfolio consists of adjacent data center hardware, software, and services, making it a one-stop shop for AI.
The Nvidia Grace central processing unit (the company's first datacenter CPU) is growing into a multi-billion-dollar product line; its InfiniBand and Ethernet networking platforms recently surpassed $13 billion in annual revenue; and its subscription software and cloud services, which simplify the development of AI applications for a variety of use cases from recommendation systems to autonomous robots, recently became a billion-dollar business.
Nvidia could be a $10 trillion company, but it'll be tough to get there by 2030
Historically, Nvidia has launched a new GPU architecture every two years: Ampere in 2020, Hopper in 2022 and Blackwell in 2024. But CEO Jensen Huang recently told analysts that going forward, the company will launch on a yearly cadence, meaning Nvidia will launch its next architecture in 2025. This acceleration should give the company a competitive advantage as companies invest heavily in AI infrastructure over the next few years.
Wall Street expects Nvidia to grow earnings at 34% annually over the next three to five years. As such, the company's current valuation of 65.5 times earnings seems reasonable. To be clear, if Nvidia fails to meet Wall Street's expectations for future earnings growth, its stock price could plummet. But if the company does meet expectations, I believe the current price is fair.
Moreover, I believe Nvidia could be worth $10 trillion in the future, but I am skeptical about the 2030 timeline. For example, if we assume Nvidia is trading at a more reasonable 30 times earnings in 10 years' time, the company would need to grow earnings at roughly 36% per year to hit a $10 trillion market cap, which is very difficult.
Should I invest $1,000 in Nvidia right now?
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Trevor Genevin The Motley Fool has invested in and recommends Nvidia. The Motley Fool has invested in and recommends Nvidia. Disclosure Policy.
The 1 Stock-Splitting AI Stock to Buy Before Its Market Cap Rise 260% to $10 Trillion, According to Wall Street Analysts was originally published by The Motley Fool.
