Nvidia Is the First $4 Trillion Company. Here's Why It Could Still Soar Higher.
Key Points
- Nvidia's market cap just hit $4 trillion, and it could rise further on positive market sentiment.
- It reports second-quarter earnings at the end of August, and it should go even higher.
- Nvidia stock offers exciting opportunities for long-term investors.
- 10 stocks we like better than Nvidia ›
Nvidia (NASDAQ: NVDA) is back as the most valuable company in the world, and it just hit a crucial milestone. It has become the first company to hit a $4 trillion in value. Let's see why investors are getting more excited about it and why it can soar higher.
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Leading in AI
Nvidia has been a successful company for decades, but its products have historically been geared toward the gaming industry. It became a household name when ChatGPT launched in 2022, forever changing how the world interacts with artificial intelligence (AI) and boosting interest in Nvidia's powerful graphics processing units (GPUs). That opportunity continues unabated, and as the industry leader whose chips are favored by the world's largest and most important tech giants, Nvidia is positioned to continue skyrocketing.
Image source: Nvidia.
It continues to dominate the market and launch new, more powerful products to stay in first place. Its Blackwell architecture was launched earlier this year to replace its Hopper product line, and it has just launched its first partnership for its Blackwell Ultra architecture with generative AI cloud services provider CoreWeave. The Blackwell Ultra chips are still in pre-order for shipping later this year.
CEO Jensen Huang expects AI to continue growing and become an essential part of tech infrastructure. There's tremendous demand for its products, which are considered the gold standard for AI development. The opportunity in data centers, which are needed to power generative AI for large language models (LLMs), is especially potent right now, and data center revenue is driving higher growth for Nvidia.
It could take a step back
As the market continues its own rebound, up almost 7% year to date, bull sentiment could push Nvidia stock higher than $4 trillion. The average Wall Street analyst consensus is for Nvidia to keep rising about 8% over the next 12 to 18 months, with a high of 53%.
In the near term, its chances will depend on the fiscal second-quarter results, which cover the period ending July 27 and will be reported on August 27. If it meets or exceeds its internal expectations, as well as those of Wall Street, it should easily soar higher. Nvidia stock looks very reasonably priced for its growth potential with a forward price-to-earnings ratio of 28.
If it misses on earnings or has any other disappointing updates, it could take a step back. In the second quarter, management is looking for revenue to increase by about 50% over last year, to $45 billion, and Wall Street is looking for $1 in earnings per share, up from $0.68 last year.
But $4 trillion or not, it's the long-term opportunity that should impress investors. Nvidia hit many speed bumps this year alone, from new competition to setbacks stemming from regulations that cut into its China business, but it keeps sailing ahead. It has a strong hold on the AI-chip market today, and its investments in new and improved iterations give it a moat. Some of the new competitors, such as Amazon, are making their own chips to provide options for clients, but they still rely on Nvidia for the most powerful computing.
As AI continues to make inroads in becoming a normative part of business and daily functioning, expect Nvidia to play a major role and to continue creating shareholder wealth.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.
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