Nvidia (NVDA +2.59%) recently made history as the first chipmaker to ever reach a market capitalization of $1 trillion. A large portion of those gains occurred over the past 10 years, as its stock skyrocketed roughly 10,870%. That massive rally would have turned a $1,000 investment into nearly $110,000.
Investors might be tempted to take some profits after those multibagger gains, but could Nvidia's stock double again and hit a $2 trillion market cap by the end of the decade?
Nvidia CEO Jensen Huang holds an RTX graphics card. Image source: Nvidia.
How did Nvidia join the 12-zero club?
Between fiscal 2013 and fiscal 2023 (which ended this January), Nvidia's revenue rose at a compound annual growth rate (CAGR) of 20% from $4.28 billion to $26.97 billion. Its adjusted net income grew at a CAGR of 28% from $728 million to $8.37 billion.
Nvidia's growth in the first half of the past decade was primarily driven by the PC gaming and professional visualization markets. But it also gradually sold more high-end GPUs to data centers, which installed its chips to accelerate AI tasks. The robust growth of the AI market subsequently drove Nvidia to launch more dedicated chips for data centers.
Nvidia generated 56% of its revenue from the data center market in fiscal 2023, compared to a mere 7% of its revenue back in fiscal 2015. The ratio of its revenue from the gaming market declined from 44% to 34% during the same period.
Nvidia experienced a major growth spurt in fiscal 2021 and fiscal 2022 as the pandemic drove more consumers to purchase new PCs for online classes, remote work, and high-end video games. The soaring use of cloud-based services throughout the crisis also prompted more data center operators to upgrade their servers with Nvidia's GPUs.
But in fiscal 2023, Nvidia's revenue stayed flat, and its adjusted EPS fell 25%. Its growth stalled out as sales of new PCs plummeted in a post-pandemic market and the macro headwinds forced data center operators to rein in their spending. Rising interest rates also popped the valuations of the market's bubblier growth stocks.
NASDAQ: NVDA
Key Data Points
As a result, Nvidia's stock sank to a two-year low of $108.13 on Oct. 13, 2022 -- which reduced its market cap to less than $300 billion. However, Nvidia's stock subsequently bounced back as the growth of the generative AI market -- led by popular chatbots like ChatGPT -- lit a raging fire under its data center business.
Analysts now expect Nvidia's revenue and adjusted EPS to surge 58% and 34%, respectively, this year, and those rosy estimates drove a stampede of bulls back to its stock.
Could Nvidia's stock price double again by fiscal 2030?
For Nvidia to double its annual revenue to $54 billion and its adjusted net income to $17 billion by the end of the decade, it would only need to grow both figures at CAGRs of 10% from fiscal 2023 through fiscal 2030. It could easily exceed those conservative growth rates by merely keeping pace with the broader PC gaming and AI markets.
According to Grand View Research, the global gaming market could expand at a CAGR of 10% from 2022 to 2030. The market for AI accelerator chips (like Nvidia's GPUs) could grow at a CAGR of 39% from 2022 to 2031, according to Research Dive. Analysts currently expect Nvidia's revenue to grow at a CAGR of 32% from fiscal 2023 through fiscal 2026, which suggests it can easily outperform the broader gaming and AI markets.
If Nvidia's valuations hold steady and it doubles its revenue and profits again, it could reach a $2 trillion market cap by 2030. However, Nvidia's stock also looks pricey now, at 218 times its trailing earnings and 37 times last year's sales.
We can't expect Nvidia to maintain those valuations if its revenue and earnings growth decelerates to a CAGR of 10% over the next seven years. Instead, its valuations could be cut in half as its growth cools off -- which means its market cap could actually stay at around $1 trillion by the end of the decade, even if it doubles its annual revenue and profits.
Even if Nvidia grows its revenue at a more respectable CAGR of 20% to $97 billion in 2030, it would still need to trade at 21 times trailing sales by the end of that fiscal year (January 2030) to reach a $2 trillion valuation. That's certainly not impossible, but it's also a best-case scenario that assumes Nvidia will continue to command its premium valuation.
Will Nvidia cross the $2 trillion mark in seven years?
Nvidia has a viable path toward reaching the $2 trillion milestone by 2030, but I believe too much of its recent growth was driven by the market hype regarding AI stocks. Therefore, I believe its stock will pull back as its valuations cool off in the near future and then recover again once investors reset their expectations to more sustainable levels.
