Next Stop, $6 Trillion. Hi everyone. Nvidia just made history again, pushing through another trillion-dollar market cap milestone. The evidence suggests the rally isn’t over.
Shortly after the open of trading on Wednesday, the chip maker became the first U.S. company in history to achieve a $5 trillion market value. Nvidia shares have jumped 54% this year and added $1 trillion in value since passing the $4 trillion milestone three months ago. At the time, I wrote that $5 trillion was next.
Now, after digesting this week’s flurry of announcements, I think the next trillion-dollar move is coming soon. In fact, the underlying fundamentals for Nvidia have improved even more than I anticipated a few months ago.
The stock’s latest move came after comments about chip demand from Nvidia CEO Jensen Huang during his keynote address at GTC D.C. on Tuesday. Huang said demand for the company’s AI chips was “exceptionally strong” and that the company had visibility on more than $500 billion of cumulative revenue for its current Blackwell AI chips and future Rubin chips through 2026.
While it is difficult to precisely translate those remarks against Wall Street estimates, analysts generally said the outlook represents material upside to current forecasts. Bernstein’s Stacy Rasgon estimated Huang is suggesting well over $300 billion in data center revenue for fiscal 2027 versus the current $258 billion consensus. There is room for even more upside given that Huang’s figure represents orders thus far and doesn’t include potential revenue from China.
Investors should know there are two major cycles at work driving demand. First is the ramp of Nvidia’s GB200/GB300 NVL72 AI servers, which I have frequently talked about in this newsletter. Nvidia is finally shipping these servers in volume, which incorporate 72 GPUs in one server rack versus the eight GPUs in prior models. Customers are eager to purchase the NVL72 servers because they’re far more efficient and powerful for AI workloads.
Second, overall AI adoption is accelerating with the advent of more accurate and useful reasoning models. Earlier this month, I interviewed Microsoft senior executive Scott Guthrie, who runs the company’s cloud and AI group. He said the latest advances in AI model capabilities would lead to an “explosion” in AI infrastructure usage. Before that, Dell’s chief operating officer Jeff Clarke told me it’s the “early innings” of the AI revolution with corporations seeing AI assistants significantly improve the productivity of programmers, customer service representatives, and salespeople.
The robust AI demand data points are piling up elsewhere too. Last week, TD Cowen said the third quarter represented the “largest inflection in demand” in data center history, with large technology companies leasing more capacity in this one quarter than all of last year. TSMC CEO C.C. Wei told analysts earlier this month on an earnings call that demand for AI is improving more than the chip manufacturer expected three months ago, characterizing the current growth numbers as “insane.”
We should also think about the AI trade more tactically. On Tuesday, OpenAI CEO Sam Altman said in a video published on the start-up’s website that an IPO is the “most likely path” given the company’s capital needs. A blockbuster IPO for the ChatGPT parent could lift sentiment for the entire sector like what happened to internet stocks when Netscape went public in 1995. Betting against AI right now is like betting against a supercycle around the releases of Windows 95 and the iPhone. For now, the enthusiasm is still mounting.
Nvidia shares are up 54% this year, but the stock isn’t expensive at 33 times forward earnings estimates, given that analysts expect 50% sales growth over the next 12 months. Compare those numbers to Apple and Microsoft, which trade at the same 33 times multiple with slower sales growth of 6% and 15%, respectively.
Of course, trees don’t grow to the sky. At some point, Nvidia won’t be as attractive an investment. The shares have more than quadrupled since we recommended the stock in a Barron’s cover story in late 2023. We held on to the bullish call even as sentiment briefly turned negative several times along the way.
From here, I’ll be paying attention to soaring multiples and deteriorating fundamentals. When and if those arrive, I’ll be the first to write about them.
But for now, Nvidia’s fundamentals are improving, earnings estimates are too low, and the valuation is reasonable. That’s the perfect recipe for another move higher—to $6 trillion.
This Week in Barron’s Tech
Jensen Huang Says Future Quantum Computers Will Use Nvidia TechnologyTeradyne Stock Spikes 14% on Earnings. How AI Is Lifting Shares.Amazon Completes AI Supercomputer and Expands Anthropic DealMicron Stock Jumps on Upbeat Memory Chip Forecast From SK HynixNokia Stock Soars. Nvidia to Invest $1 Billion and Take 2.9% Stake.
Write to Tae Kim at tae.kim@barrons.com or follow him on X at @firstadopter.