When will NVIDIA reach a market value of $2 trillion?

This article is compiled from Barchart's Mohit Oberoi.

With the rapid development of artificial intelligence (AI) technology, NVIDIA, the semiconductor design giant, achieved remarkable performance in 2023, with its stock price soaring by 240%, which is 10 times the return of the S&P 500 index during the same period. In the process, NVIDIA became the first semiconductor company to join the trillion-dollar club.

However, at the beginning of 2024, US tech stocks performed poorly, with Apple even experiencing three downgrades in the first half of January. In contrast, NVIDIA's stock price continues to steadily rise, with an increase of over 16% since the beginning of the year, ranking among the top five in the S&P 500 index.

So, can NVIDIA continue this growth momentum and achieve the milestone of a $2 trillion market value in 2025? Here are the predictions for NVIDIA in 2025 and the key factors that may continue to drive the stock price up in the coming years.

What drives the rise in NVIDIA's stock price?

The rise in NVIDIA's stock price is mainly due to the high sales of its AI chips. The company's revenue in the most recent quarter reached $18.1 billion, more than triple the same period last year, and the midpoint of the revenue forecast for the current quarter is expected to reach $20 billion. NVIDIA's net profit also reached a record $9.24 billion in the third quarter of the 2024 fiscal year, compared to just $680 million in the same period last year.

NVIDIA stock price forecast for 2025

NVIDIA is optimistic about its business prospects in 2025. In the earnings conference call for the third quarter of the 2024 fiscal year, when asked by analysts about whether the company's data center division (which sells AI chips) can continue to grow in 2025, CEO Jensen Huang confidently replied, "I absolutely believe that the data center will grow in 2025. We are significantly expanding supply and have won the world's broadest, largest, and most capable supply chain."

Wall Street analysts also have a very positive view of NVIDIA, with a consensus rating of "strong buy." Among the 36 analysts covering the stock, 30 gave a "strong buy" rating, 3 expressed a "moderate buy" rating, and the remaining 3 held a "hold" attitude. The average target price for NVIDIA is $646.54, which is 13.4% higher than the current stock price. The highest target price is $1,100, which means the stock price will double from its current level.

Can NVIDIA achieve a $2 trillion market value?

To achieve a $2 trillion market value, NVIDIA's stock price needs to rise by about 45%. Considering the outstanding performance of the stock in the past decade, with a compound annual growth rate (CAGR) of 62%, such a stock price increase does not seem unreasonable. Although the disclaimer that "past performance may not be indicative of future results" is a common one, NVIDIA's stock price CAGR in the past 3 and 5 years was 61% and 70% respectively, showing strong growth momentum.

Risks Faced by NVIDIA

Despite NVIDIA's positive momentum, we still need to analyze the risks involved.

One potential risk that NVIDIA faces is the potential slowdown in demand for AI chips in the coming years.

As competition intensifies and rival companies launch similar chips, the premium pricing of AI chips may also decrease.

The data center business in China accounts for 20%-25% of NVIDIA's revenue. During the third quarter earnings conference call, CFO Colette Kress stated, "Export controls will have a negative impact on our Chinese market, and even in the long run, we cannot clearly understand the severity of this impact." However, it is widely believed that NVIDIA's rapid growth can offset such losses.

Although NVIDIA's forward P/E ratio for the next 12 months is 28.7 times, considering the expected revenue and profit growth, this valuation looks very attractive. However, the outlook beyond 2025 is somewhat uncertain.

Conclusion

If you are an investor seeking growth and looking to invest in themes such as AI, metaverse, and autonomous driving, then NVIDIA is undoubtedly a member of your investment portfolio. The company has been leading the way ahead of its competitors for many years, and I see no reason to believe that this will change anytime soon. As for whether NVIDIA's market value can reach $2 trillion, I believe it is only a matter of time. Even if the demand for AI chips slows down, the company has other growth drivers to support its expansion in the next phase.

None of the above content constitutes investment advice.