The world's most valuable company, Microsoft (MSFT 1.33%), has a market capitalization of $3.2 trillion, and it's the only member of the "$3 trillion club" right now. Apple was a club member last year, but then a decline in stock price pulled its market cap down to $2.9 trillion. So this club is so exclusive, it only has one member.
But that exclusivity may not last as another company is rocketing up the valuation ranks.
Nvidia (NVDA +1.73%) was worth just $360 billion at the start of 2023. Since then, its stock has soared 720% to elevate its market cap to $2.6 trillion. Nvidia designs the data center chips powering the recent artificial intelligence (AI) revolution, and demand is skyrocketing. Nvidia stock now trades at over $1,060 per share, which makes it somewhat inaccessible for retail investors with less available cash to invest. To aid accessibility, the company will initiate a 10-for-1 stock split after the market closes on Friday, June 7, increasing shares in circulation tenfold, while reducing the price per share to around $106.
That's great news for retail investors because this company probably isn't done creating value, and it could soon join Microsoft in the $3 trillion club. Here's why.
NASDAQ: NVDA
Key Data Points
Dominating the market for AI data center chips
CEO Jensen Huang and his company delivered Nvidia's first AI supercomputer to a start-up called OpenAI in 2016. That start-up went on to develop ChatGPT, which is used by at least 180 million people to answer questions (including complex ones) and rapidly generate text, images, videos, and computer code they need in their daily lives. ChatGPT's November 2022 debut sparked an arms race in the tech industry to develop powerful AI applications.
AI development demands a high computing workload, so it requires purpose-built data centers using hundreds of thousands of graphics processing chips (GPUs). Nvidia's H100 GPU set the benchmark for the industry, so it's the most popular chip among data center operators like Amazon and Microsoft, who rent the computing power to AI developers. Nvidia says those companies can earn an average of $5 in rental revenue for every $1 they invest in AI infrastructure. That level of return has them buying GPUs hand over fist.
During the first quarter of fiscal 2025 (ended April 28), Nvidia said more than 100 customers were building AI factories (data centers), with some using clusters of 100,000 GPUs! Considering the H100 sells for up to $40,000 a piece, it's no surprise Nvidia's valuation skyrocketed.
Despite competitors like Advanced Micro Devices recently launching alternatives to the H100, Nvidia expects to maintain a market share of more than 90% this year. That's because the company isn't resting on its success; it will start shipping its new H200 GPU in the next couple of months. The H200 can inference (the process of feeding live data to an AI model so it can make predictions) twice as fast as the H100 while consuming half the amount of energy.
Production has also begun on GPUs built on Nvidia's new Blackwell architecture, which will inference at a whopping 30 times the speed of the H100. Huang says Blackwell will lay the foundation for trillion-parameter AI models, which will lead to applications that are smarter and more accurate.
So far, only leading AI developers (like OpenAI and Anthropic) have crossed the trillion-parameter threshold, but Blackwell will make it a reality for more companies because of its speed and energy efficiency, which drive down costs.
Image source: Nvidia.
Nvidia's revenue and earnings are soaring
Nvidia generated $26 billion in revenue during the recently completed first quarter of fiscal 2025, which was a 262% increase from the year-ago period. Its data center segment alone accounted for $22.6 billion of that revenue, representing an eye-watering growth of 427%. On the bottom line, Nvidia brought in $15.2 billion in net income, which translated to $6.12 in earnings per share, up 462%.
The company also issued a blockbuster forecast for the upcoming Q2, projecting $28 billion in revenue, which topped Wall Street's expectations. It implies yet another quarter of triple-digit percentage growth.
Many investors assume Nvidia's dominance in the data center segment will be eroded by competitors over time, and while it might be true to a degree, the company has built a moat. The Nvidia AI platform offers GPUs and hardware infrastructure as well as a suite of software tools to give developers everything they need to deploy AI applications -- from chatbots to self-driving vehicle technologies.
For example, CUDA is the software layer of the GPU that allows developers to rapidly accelerate computing applications, and it can only be used with Nvidia's chips. In other words, data center operators might hesitate to switch GPU suppliers because developers are already comfortable with CUDA, thus protecting Nvidia's sales.
Therefore, while Nvidia can't grow its sales by triple-digit percentages in perpetuity, it can maintain a high enough market share to deliver steady growth long into the future.
Nvidia is a shoo-in to join the $3 trillion club
Wall Street analysts predict Nvidia will generate $24.62 in earnings per share during the current fiscal 2025 year, and $32.41 in fiscal 2026. Using its current stock price of $1,064.69, it trades at a forward price-to-earnings (P/E) ratio of 43.2 based on the fiscal 2025 estimate, and 32.8 based on the fiscal 2026 estimate. In essence, Nvidia's significant earnings growth makes its stock appear much cheaper the further into the future you look.
By comparison, Microsoft trades at forward P/E ratios of 39.5 based on Wall Street's estimate for the current year, and 35.1 based on next year. That's right -- looking ahead, Nvidia stock is actually cheaper than Microsoft.
Nvidia shares only need to gain another 15% for the company to join the $3 trillion club, and it looks like a mere formality at this point. Investors should look out for the stock split, which will begin trading at the new price on Monday, June 10, because it will then be much more affordable to buy into the next wave of growth.
