$4 Trillion Appears Inevitable as Nvidia Remains the Star of the Generative AI Boom

cover
9 Jul 2024

From improbable to inevitable. Nvidia’s emergence as the frontrunner to become the world’s first $4 trillion stock has been sustained by the generative AI boom. With no signs of slowing, NVDA’s potential appears endless.

The third quarter of 2024 began with the same level of momentum on display for Nvidia as KeyBanc analyst John Vinh raised his target price on the stock to $180. This boost of 33% from current levels would see the stock surpass the $4 trillion market capitalization mark and become the first company to do so.

These lofty expectations encapsulate the meteoric rise of the semiconductor firm. Just two years ago, NVDA was battling a sustained Wall Street decline amid tech stock sell-offs. The prospect of becoming a $1 trillion stock seemed like a pipedream, let alone mounting a challenge to become the world’s most valuable stock.

The generative AI boom changed everything. Bloomberg estimates suggest that the generative AI market alone will grow at a CAGR of 42% over the next 10 years into a $1.3 trillion market by 2032. Nvidia’s status as a market leader in providing AI chipsets ensures that the company will be a driving force in this growth.

Strength in Fundamentals

Although the long-term sustainability of the generative AI frenzy has been called into question, there’s little doubt that Nvidia has showcased tangible fundamentals to support its impressive Wall Street performance in recent months.

In May, the semiconductor giant reported revenues that tripled to $26.04 billion year over year, weighing in well above analyst forecasts.

Additionally, Nvidia saw net income rise to $14.88 billion, comfortably up from the $2.04 billion reported a year prior.

Nvidia’s buoyant outlook is further supported by forecasts for Q2 2024 revenue reaching $28 billion, plus or minus two percent. This would also fall way above analyst expectations.

Driving Force in Generative AI

The brilliance of Nvidia’s position as a market leader in providing the computer chips that will power the generative AI boom has drawn some impressive comparisons. According to Jim Keller, a former AMD and Tesla engineer and current CEO of AI firm Tenstorrent, Nvidia is becoming the IBM of the AI era.

Given the sheer scale of the ongoing AI boom, Nvidia could surpass IBM in terms of performance and make an unprecedented claim to become the cornerstone of generative AI.

This claim could be sustained by the launch of Nvidia’s Blackwell computing processors, which were unveiled in spring 2024. The new products will replace the company’s popular H100 chips and facilitate further revenue generation.

The arrival of Blackwell processors comes at a time when an increasing number of firms are seeking ways to incorporate generative AI into their operations. This could help drive sales even higher for Nvidia.

However, Nvidia isn’t simply driving the future of AI hardware for enterprises. The firm announced in its June 2024 keynote address plans to integrate its AI services into the world of video games through its ACE-powered Convert Protocol to create fresh on-demand interactions between games and gamers.

Given that Microsoft opted to acquire Activision Blizzard for $68.7 billion on the belief that gaming is the future of entertainment and the metaverse, Nvidia’s strides in the landscape could drive its growth further into the future.

Is the GenAI Boom Sustainable?

Although it appears clear that generative AI will continue its emergence as a disruptive force throughout a vast array of industries, Nvidia’s position as the king of GenAI isn’t necessarily assured.

Competition is growing, and more budget-focused firms like Taiwan Semiconductor Manufacturing Company and Advanced Micro Devices are names that could position themselves as cheaper alternatives as the technology continues its emergence.

Likewise, many of the tech giants that are currently among Nvidia’s list of customers are intent on taking the production of AI chips in-house. These factors could all eat into NVDA’s dominance.

“Investors should exercise caution and conduct thorough research before investing in any field, especially one as dynamic as GenAI,” warns Maxim Manturov, head of investment research at Freedom24. “Success in GenAI depends not only on cutting-edge technology but also on a robust data infrastructure, a skilled workforce, and strategic planning.”

While Nvidia’s position as a generative AI market leader appears solid today, there will certainly be challenges to its dominance in the years to come. Should a rival begin generating cheaper AI chipsets, the company’s stock could tumble.

Thinking Two Moves Ahead

The most important factor in determining Nvidia’s path to $4 trillion is the fact that the company is never content with resting on its laurels.

With Nvidia investing billions of dollars into developing leading generative AI computer chips, we’re looking at a company that’s seeking to stay two moves ahead of its rivals.

As the market grows, new competitors are likely to emerge, but as one of the world’s largest companies, it’s unlikely that they would have the firepower to go toe-to-toe with Nvidia.

With this in mind, Nvidia’s future is in the firm’s hands. If $4 trillion is inevitable, then the likelihood is that CEO Jensen Huang already has $5 trillion and beyond in his sights.