Nvidia’s Explosive Growth: Can it Continue?
Introduction
Nvidia, the chipmaker behind OpenAI’s ChatGPT, has seen its market capitalization grow astronomically in the past 12 months, from $1.1 trillion to $3.1 trillion. Tech investor James Anderson, who predicted the early success of Amazon and Tesla, believes this is just the beginning. In this article, we’ll explore Anderson’s prediction and the potential future of Nvidia.
Anderson’s Bold Prediction
Anderson, former partner at investment giant Baillie Gifford, told the Financial Times that Nvidia’s potential scale is "both way higher than I’ve ever seen before and could lead to a market cap of double-digit trillions." He estimates a 10%-15% probability of this outcome. Anderson’s projection is a lofty one, but his hunches have proved correct before. He was one of Amazon’s and Tesla’s biggest champions, and his Scottish Mortgage Investment Trust saw returns of 2,240% from 2005 to 2021.
Nvidia’s Rise to Success
Nvidia’s growth can be attributed to the AI boom, which has minted half a million new millionaires who invested in the tech that has begun to revolutionize the workplace and media consumption. Nvidia, along with tech giants Amazon, Google, Microsoft, and Apple, make up about 32% of the S&P 500. With its data center revenue growing at about 60%, Anderson calculated that the company would have a market capitalization of about $49 trillion if the pattern continues over the next decade. That’s more than the entire value of every company in the S&P 500.
Not So Fast
Other finance experts don’t share Anderson’s bullish take on Nvidia. Aswath Damodaran, professor of finance at New York University’s Stern School of Business, argues Nvidia is riding a wave of early AI optimism. He believes the momentum is clearly with Nvidia, but notes that Tesla experienced a similar rally in 2020, only for shares to plummet about 30% this year alone. Damodaran says the AI chip market is not worth $1 trillion alone, and the AI market more broadly is worth about $2 or $3 trillion, meaning Nvidia would have to tap into several big AI markets to maintain and grow its value.
A Sustainable Future
Deepwater Asset Management managing partner Doug Clinton believes Nvidia’s colossal growth is sustainable, particularly as the demand for AI is expected to increase. Clinton notes that despite worries about a slowdown in demand, we haven’t seen that happen yet. With Nvidia making up over 80% of the global GPU semiconductor market, the company will likely continue to ride high in the foreseeable future.
Conclusion
Nvidia’s explosive growth has left many experts wondering if it can continue. While James Anderson’s prediction of a market cap of double-digit trillions is ambitious, his track record of predicting the success of Amazon and Tesla is impressive. However, not everyone shares his optimism, and experts like Aswath Damodaran are cautioning against getting too caught up in the hype. Only time will tell if Nvidia can maintain its dominant position in the AI chip market.
FAQs
Q: What is the current market capitalization of Nvidia?
A: Nvidia’s current market capitalization is around $3.1 trillion.
Q: Who is James Anderson, and what are his credentials?
A: James Anderson is a former partner at investment giant Baillie Gifford and has a track record of predicting the success of companies like Amazon and Tesla.
Q: What is the potential future market capitalization of Nvidia, according to James Anderson?
A: Anderson estimates a 10%-15% probability of Nvidia’s market capitalization reaching double-digit trillions.
Q: Why is Nvidia’s growth attributed to the AI boom?
A: Nvidia’s growth is attributed to the AI boom, which has minted half a million new millionaires who invested in the tech that has begun to revolutionize the workplace and media consumption.
Q: What is Aswath Damodaran’s take on Nvidia’s growth?
A: Damodaran argues that Nvidia is riding a wave of early AI optimism and that the momentum is clearly with Nvidia, but notes that Tesla experienced a similar rally in 2020, only for shares to plummet about 30% this year alone.
Author: fortune.com
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