Over recent years, artificial intelligence (AI) has fueled the expansion of numerous businesses. This technology has the potential to revolutionize processes, significantly boosting company performance while reducing expenses. Some organizations have already gained a significant edge, either by developing AI solutions and services or by seamlessly integrating AI into their everyday workflows.
This advancement has translated into multi-billion dollar revenues for certain players, along with enhanced productivity and reduced operational costs. Investors have responded favorably, driving many AI-related stocks to record highs, with share prices increasing by hundreds or even thousands of percent in recent years. The rise of AI-focused firms has also shifted the hierarchy of market capitalizations, as their valuations have soared.
Just a few months back, one such company achieved a market capitalization milestone that had never been reached before. I believe this leader in AI will keep climbing and could be valued at an astounding $10 trillion within five years. Let's take a closer look at this remarkable AI success story.
Image credit: Getty Images.
Powering essential AI functions
In the past few years, this company has taken the technology industry by surprise, becoming the top AI chip producer globally. I’m referring to Nvidia ( NVDA 0.43%). These chips are fundamental, enabling the most important AI operations, and this company’s graphics processing units (GPUs)—which serve as AI chips—stand as the most advanced available. Ambitious AI clients have noticed, rushing to secure as many Nvidia GPUs as possible for their projects, which has fueled Nvidia’s explosive revenue increase.
To put this into perspective, just two years ago, Nvidia’s yearly revenue was $27 billion, while in the most recent fiscal year, it soared to over $130 billion.
Investors have taken note, sending Nvidia’s stock price up by more than 1,100% in the last three years. This propelled the company past the $4 trillion market cap mark a few months ago, making it the first business ever to reach this valuation and securing its position atop the global rankings. The company has since advanced to a $4.3 trillion market cap, while major players like Microsoft and Apple are still below $4 trillion, at least for now.
NVDA Market Cap data via YCharts .
Why am I confident Nvidia could hit $10 trillion? The company expects global spending on AI infrastructure to approach $4 trillion by the decade’s end. As the main supplier of top-tier chips and related products, Nvidia is well placed to capture a large share of this opportunity. Historically, Nvidia has accounted for about 25% of data center investments—this could translate to $1 trillion in revenue. With Nvidia’s past revenue growth driving share price and valuation higher, this trend could very well continue.
The road to $10 trillion
Let’s break down how Nvidia could reach a $10 trillion valuation within five years. Assuming Nvidia maintains its current price-to-sales ratio of 26, the company would need to generate approximately $380 billion in revenue by 2030. Projections suggest Nvidia could post $200 billion in sales this year, indicating it would need an average annual growth rate of around 14% over the next five years. Given Nvidia’s robust growth record, strong outlook for AI spending, and its dominant market position, this rate appears achievable.
Even if Nvidia’s expansion slows compared to its recent 56% quarterly revenue growth, and if AI-related spending falls short of current forecasts, the company still seems well positioned to reach my market cap projection.
What does this mean for investors? Nvidia’s rising valuation highlights the company’s underlying strength, but it shouldn’t be the sole reason to invest in its stock. Instead, focus on Nvidia’s revenue growth, the ongoing demand for its chips, and its innovation strategy. These factors offer strong reasons to consider this leading AI stock.
