This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- Nvidia has delivered blistering gains since the advent of AI, but that could be just the beginning.
- One distinguished investor believes that the AI chipmaker could climb much higher over the next 10 years.
- While a $50-trillion market cap might seem like a pipe dream, investors shouldn't miss the forest for the trees.
The name James Anderson might not ring any bells with U.S. investors, but his track record and investing acumen are well documented. The legendary investor was a rock star at Scottish investment management firm Baillie Gifford for more than 40 years. He was in charge of the premier Scottish Mortgage Investment Trust for over two decades, generating returns of more than 1,700% during his term.
Anderson secured his legacy early on, recognizing the dramatic growth potential of then early stage companies, including Netflix, Amazon, Tesla, and Nvidia (NASDAQ: NVDA), delivering considerable profits for investors along the way. Given his track record, when Anderson talks, investors should listen.
Most experts agree that the adoption of artificial intelligence (AI) is still in its early stages, and if the trend continues, Nvidia's market cap could surge to as much as $50 trillion by 2035, according to Anderson. While that might seem improbable on its face, Anderson's reasoning is worth a look.
Dominating the space
The dawn of generative AI in early 2023 created a windfall for Nvidia. The company pioneered the graphics processing units (GPUs) that quickly became the gold standard for AI. Nvidia rode the unprecedented demand for its chips to become the world's largest publicly traded company, valued at $4.58 trillion (as of this writing).
After two successive years of triple-digit year-over-year sales growth, Nvidia's results have begun to moderate but are still enviable by any standard. In its fiscal 2026 second quarter (ended July 27), Nvidia generated revenue that grew 56% year over year to a record $46.7 billion, while diluted earnings per share (EPS) of $1.08 jumped 61%.
Yet this could be just the beginning. The AI market is projected to be worth as much as $15.7 trillion by 2030, according to data compiled by "Big Four" accounting firm PricewaterhouseCoopers (PwC). The report suggests "AI is still at a very early stage." If Nvidia earns just a small slice of that total opportunity, sales and profits could continue to surge, resulting in a windfall for the chipmaker and its shareholders.
Anderson estimates the data center market, where most AI processing is conducted, is poised to grow 60% annually. If Nvidia's profit margin holds steady and the adoption of AI continues at its current pace over the next 10 years, Anderson estimates that Nvidia would deliver EPS of $1,350 and free cash flow of $1,000 per share. That would drive the stock price to about $20,000, pushing its market cap to roughly $49 trillion.
Despite increasing competition, Nvidia currently dominates the data center GPU space, commanding 92% of the market, according to IoT Analytics. Anderson points out that the company's "persistent exponential progress, the competitive advantages in hardware and software, and the culture and leadership are exactly what we look for."
The fine print
Make no mistake, plenty of things will have to go right for Nvidia to reach this astonishing benchmark, and there will be a lot of obstacles along the way. Demand for AI could falter, a rival chipmaker could "invent a better mousetrap," so to speak, or the economy could go south -- and these are just a few examples of the challenges that could arise.
Even Anderson admits that this "isn't a prediction but a possibility if artificial intelligence works for customers and Nvidia's lead is intact." When asked about the potential for the stock to reach these meteoric heights, Anderson puts the odds at between 10% and 15%.
However, investors shouldn't miss the forest for the trees. "It is the long duration of the development of [GPU] usage in AI -- and not just AI -- from excitement, through potential pauses, to transformation of industries that is most important to us," Anderson said.
There's also the matter of Nvidia's valuation. The stock has a price-to-earnings (P/E) ratio of roughly 54, compared to a multiple of 31 for the S&P 500. However, at less than 30 times next year's expected earnings, I'd submit it's an attractive price to pay, particularly given the magnitude of the opportunity.
Even if Nvidia doesn't hit a $50 trillion market cap over the next 10 years, all the available evidence suggests Anderson's thesis is directionally accurate. Furthermore, CEO Jensen Huang has proven particularly adept at identifying opportunities before they materialize and positioning Nvidia for future success. Given his track record, I wouldn't bet against him.
That's why I believe Nvidia stock is still a buy.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
