Nvidia Could Be Worth Nearly $50 Trillion in a Decade, Tesla and Amazon Investor Says: Nearly 2X U.S. GDP or 3X Current Chinese GDP – NVIDIA (NASDAQ: NVDA), Amazon.com (NASDAQ: AMZN)

A leading technology investor has predicted that NVIDIA Corp. NVDA could reach a market capitalization of nearly $50 trillion over the next decade.

What happened: James Andersonone of the first investors in companies like Tesla Inc TSLA And Amazon.com Inc AMZNexpressed an optimistic outlook on Nvidia’s future potential, the Financial Times reported on Sunday. He suggested that the chipmaker’s market capitalization could potentially exceed the combined value of the current S&P 500.

Anderson’s optimism stems from Nvidia’s role in driving the growing demand for AI chips, which are critical for training and running advanced generative AI models. That demand has propelled Nvidia’s shares up 168% year-to-date, pushing its market capitalization above $3 trillion.

“Nvidia’s potential scale in the best-case scenario is both far greater than I’ve ever seen before and could lead to a multi-trillion market cap. This is not a prediction but a possibility if AI works for customers and Nvidia’s lead is intact,” Anderson said.

To put it in context, Anderson’s prediction that Nvidia would reach a market cap of $50 trillion would be nearly twice as large as the current U.S. gross domestic product (GDP) of $27.36 trillion, or nearly three times as large as China’s GDP of $17.79 trillion, according to World Bank data.

Despite this remarkable growth, Anderson sees even greater potential for Nvidia, provided that artificial intelligence continues to meet customer expectations and Nvidia maintains its lead in the industry.

Anderson, who now runs a $650 million fund at Lingotto Investment Managementbelieves that “Nvidia’s exponential and persistent progress, competitive advantages in hardware and software, and culture and leadership are exactly what we are looking for.”

He also acknowledged that the path to that potential valuation would be volatile, with possible declines of 35% to 40%. He expressed confidence in Nvidia’s long-term prospects, however, saying the company is at the forefront of solving serious problems in areas such as autonomous driving, robotics and drug discovery.

Anderson estimated that actual growth in demand for AI chips for data centers is currently about 60% per year. Looking ahead to the next decade, he estimated that sustained 60% growth in data center revenue, with unchanged margins, could lead to earnings of $1,350 per share and free cash flow of about $1,000 per share.

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Assuming a 5% free cash flow yield, this analysis suggests that Nvidia shares could potentially be valued at $20,000 in 10 years, implying a market capitalization of $49 trillion. Anderson assigned a 10% to 15% probability that this scenario would play out, according to the report.

Why is this important?:Anderson’s prediction comes amid a broader context of excitement and caution in the market. The U.S. stock market has seen a significant surge, fueled in large part by the promise of AI. The surge has been compared to the dot-com bubble of the late 1990s, with the S&P 500 hitting new highs and the Nasdaq Composite index up 70% since late 2022.

However, not everyone is optimistic. Craig JohnsonGeneral Manager and Chief Market Technician at Piper Sandlerhighlighted “red flags” in the market, suggesting Nvidia could be in “bubble territory” and hinting at a possible market pullback.

Even Cathie WoodCEO of ARK Investacknowledged Nvidia’s stellar performance but predicted “near-term indigestion” for the company’s business as customers reevaluate their AI strategies.

Despite these concerns, some analysts remain optimistic. Ray Wangfounder of Research on constellationshas a $200 price target on Nvidia stock, citing the company’s central role in the AI ​​space.

Anderson gained some notoriety during his nearly four-decade tenure at Baillie GiffordHe oversaw its flagship fund, the Scottish Mortgage Investment Trust, which initially invested in Nvidia in 2016. His leadership was pivotal in transforming the Edinburgh-based private partnership into an exceptional and unexpected company in the technology investment sector.

Price action:Nvidia closed at $129.28, a gain of 1.47% on the day. After hours trading, the stock was up 0.48%. Year-to-date, Nvidia is up a substantial 168.37%, according to data from Benzinga Pro.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote