This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- Nvidia spearheaded the rapidly growing AI accelerator market, and revenue continues to grow considerably despite its massive size.
- The $5 trillion market cap comes with an unexpected headwind.
Nvidia (NASDAQ: NVDA) stock recently surged to record highs. That increase took the stock to a $5 trillion market cap, making it the first publicly traded company to reach that milestone.
Nvidia stock reached this point by experiencing a nearly 1,700% surge in its stock price in just over three years, and less than four months after the market cap first reached $4 trillion. Yet, what is arguably the most fantastic part of Nvidia's rise is that it is still not an expensive stock! Here's why Nvidia is still affordable and why it likely can continue beating the market.
The case for Nvidia
Admittedly, one cannot credibly label Nvidia a "cheap stock." Its price-to-earnings (P/E) ratio stands at 59, not a low level considering the S&P 500 average of 32. However, growth stocks, particularly in the AI space, routinely trade at higher P/E ratios. Moreover, with what Nvidia has to offer, that earnings multiple is unlikely to deter investors.
As most tech investors know, Nvidia dominates the AI accelerator market. The product accounted for 88% of the company's revenue in the first half of fiscal 2026 (ended July 27). Also, while we do not know its exact market share, most analysts estimate Nvidia holds between 70% and 95% of the market, according to Mizuho Securities.
Then there's the industry growth. Grand View Research estimates the compound annual growth rate (CAGR) of the AI chip market at 29% through 2030. Still, due to Nvidia's dominance, the company's revenue in the first two quarters of fiscal 2026 was $91 billion, a 62% yearly increase.
Even though the costs of keeping up with demand have impacted Nvidia's bottom line, its $45 billion in net income in the first half of the year still rose by 43%. Such growth levels make a 59 P/E ratio easier to justify, even for more conservative investors.
An unexpected challenge
Interestingly, the thing investors need to remember is that investing in Nvidia will come with a surprising challenge: the way its large size affects its growth.
Growth investors could hit a wall with its $5 trillion market cap. This is worth keeping in mind since growth investors tend to look for outsized gains, and Nvidia doubling its value just one time would take that market cap to $10 trillion, a seemingly difficult feat when no company has yet reached the $6 trillion level.
In contrast, its closest rival in the AI accelerator space is likely AMD. Nonetheless, AMD's market cap is a comparatively modest $424 billion. That means that doubling the value of AMD's stock three times would take its market cap to just over $3.4 trillion, well below Nvidia's current size.
AMD also has a history of catching up to rivals, and many analysts think its upcoming MI450 accelerator, due out in the second half of 2026, can significantly close the competitive gap with Nvidia. If AMD meets this expectation, it could add to its growth potential.
However, considering the stability and market leadership Nvidia offers, the company should remain attractive to investors who care about more than just growth. Nvidia's first-mover advantage in the AI accelerator market, combined with the rapidly growing demand, could attract more conservative investors seeking a safer avenue for growth.
Thus, even with the headwind of achieving market caps that no other stocks have experienced before, Nvidia remains well positioned to deliver for the investors who hold the stock.
Nvidia beyond $5 trillion
Nvidia is still a reasonably priced stock despite its $5 trillion market cap, and investors should expect it to continue delivering outsized gains.
Admittedly, large sizes make it more of a challenge to achieve higher-percentage growth. That could partially explain its unexpectedly low P/E ratio and may persuade some growth investors to bypass Nvidia in favor of rivals with lower market caps.
Nonetheless, many investors will sacrifice some growth in favor of stability, and that may make Nvidia stock more attractive to risk averse investors. It benefits from dominating the fast-growing AI accelerator market and continues to post phenomenal revenue growth numbers despite its massive size.
Such factors make it a near certainty that it will deliver market-beating gains for the foreseeable future.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
