Prognostication: Nvidia Stands to Becomes the Globe's Initial $4 Trillion Enterprise
By market value, no corporation has ever attained a worth of $4 trillion, yet Nvidia (NVDA -2.25%) is moving closer. At this moment, Nvidia's worth hovers around $3.6 trillion. With a mere 11% escalation in value, it'll surpass this barrier. This is noteworthy since Apple (AAPL 0.07%), which needs an 16% value increase to outpace Nvidia, was the pioneer in crossing the $1 trillion, $2 trillion, and $3 trillion market value thresholds.
For those with an interest in such financial indicators, the central query is: Can Nvidia append the upcoming valuation milestone before Apple?
Nvidia's ascension to the pinnacle has occurred primarily over the last few years
Nvidia and Apple adopted distinct strategies to reach this juncture. Apple progressively expanded its income and earnings through various consumer products, especially the iPhone, although its growth has diminished considerably lately.
The flagship product from Nvidia is the graphics processing unit (GPU). Originally created to speedily process gaming graphics, the GPU's ability to concurrently process numerous computations makes it an excellent option for tasks demanding intense computations. As a result, GPUs are ideal for other tasks like drug research and engineering simulations.
However, the primary application of Nvidia GPUs has emerged recently: artificial intelligence (AI) model training. Developing a powerful AI model necessitates substantial computing resources. The AI hyperscalers are purchasing Nvidia GPUs in massive quantities to augment their capacities.
This demand has driven Nvidia's revenue to skyrocket, sometimes tripling year-over-year in recent quarters.
In tandem with its income surge, Nvidia's profit margins have soared due to the lack of substantial hiring or production expansion to cater to the burgeoning demand. The resulting combination of rising income and increasing profit margins has propelled Nvidia's earnings growth at a faster rate than its revenue.
The chart depicted above might appear underwhelming until you examine the scale and see that Nvidia's earnings were growing over 10x year-over-year during 2023.
Nvidia's growth is starting to decelerate, but it's still commendable.
Nvidia carries substantial expectations already embedded within its stock
In the third quarter of fiscal year 2025 (ending in October), Nvidia anticipates its revenue to reach approximately $32.5 billion, indicating 80% revenue growth. Even though it's still rapid, it's significantly lower compared to previous levels. This is because Nvidia is now confronting more challenging year-over-year comparisons as it surmounts another period of strong revenue growth from a year ago.
However, this is projected to constitute an 8.3% rise from Q2's revenue figure. If a company manages 8.3% quarterly revenue increase, it would result in 38% year-over-year growth over the subsequent year.
This almost corresponds to Wall Street's fiscal year 2026 forecast of 45% revenue growth. As a consequence, investors should anticipate 8% to 9% quarterly revenue growth as the benchmark for the ensuing year.
But can this propel it above a $4 trillion valuation? It's challenging to predict, as the stock currently holds substantial expectations.
Nvidia already trades at 51 times forward earnings, which constitutes some of the highest multiples it has traded at during its tenure.
This incorporates a significant amount of growth, and if Nvidia announces growth to slow further than discussed above, then the stock might encounter challenges and plummet.
Therefore, if Nvidia surpasses the line, it will likely occur immediately after its Q3 earnings report, which falls on Wednesday, Nov. 20. If Nvidia's results are well-received, the stock could easily exceed $4 trillion before 2024 elapses. If they disappoint expectations, don't be taken aback to witness the stock plummet, granting Apple the lead in the race to $4 trillion.
Regardless of the outcome during Nvidia's report, based on the language employed in some of its largest clients' conference calls, I'm rather confident it will meet expectations. Consequently, I believe investors are prudent in wagering that Nvidia will attain $4 trillion faster than Apple.
Investors interested in finance and investing might be wondering: Will Nvidia break the $4 trillion valuation threshold before Apple does?
Given Nvidia's current trading at 51 times forward earnings, surpassing a $4 trillion valuation could heavily depend on its Q3 earnings report on November 20. A strong performance could potentially push Nvidia above this milestone, while a disappointing report might lead to a stock drop, keeping Apple in the lead.
