The world's most valuable company could be on its way to a $9 trillion valuation in the next five years.
Ben Reitzes, an analyst at Melius Research, thinks Nvidia could notch a $9 trillion market cap by the end of the decade.
The chip giant is poised to nab a big share of the overall demand for AI infrastructure, Reitzes said in a video presentation to clients on Monday. That could potentially take the company's annual revenue to $600 billion by 2030, supporting the massive valuation target, per Melius' estimates.
"We think the most important thing for long-term investors is to look at power," Reitzes added. "Power is the biggest constraint."
There are several moving parts to Reitzes' thesis:
- AI energy demand will keep growing. Gigawatt energy demand stemming from AI is on track to post a 30% compounded annual growth rate per year through the end of the decade, Reitzes said, citing figures from McKinsey. That implies AI workload demand hitting 156 gigawatts by the end of 2030.
Each gigawatt of demand could lead to $40 billion to $50 billion in revenue opportunity for Nvidia. That's according to estimates the company has shared with investors.
But, when accounting for inflation and other factors, revenue opportunity for Nvidia could increase to as much as $60 billion through the end of the decade, Reitzes speculated.
Assuming that energy demand grows at a 30% pace, that implies Nvidia's total annual revenue opportunity rising to around $2 trillion by 2030, Reitzes said.
Nvidia will capture a significant share of the AI infrastructure market. Nvidia is already partnering with data center companies and other hyperscalers to capture some of the AI infrastructure market, Reitzes said.
"What does that mean? That means they're becoming an infrastructure player, and they should have a meaningful share of the AI workload buildout," he added.
Assuming that Nvidia captures 30% of the market, that implies the chipmaker pulling in around $600 billion in annual revenue by the end of the decade. That supports a $9 trillion valuation for the company, Reitzes said, using an annual earnings multiple of 15 to base his calculations.
Nvidia became the first company to hit a $4 trillion valuation in July. Retizes' estimated valuation implies that the company will more than double its market cap in the next five years.
"Now, I'm not saying they get there by any given year. But at the end of the decade, it does look possible," he added.
There's one caveat: Reitzes' estimates hinge on players in the industry investing to support the demand for AI energy. It will require around $5 trillion to unleash the energy demand he outlines by 2030.
"Can the industry invest that $5 trillion in order to release those gigawatts so Nvidia can be the strategic vendor with $600 billion in revenue by the end of the decade? We think power is the one thing we've got to ask Jensen on the call for long-term investors," he said.
Investors are waiting for Nvidia to report earnings for the second quarter next Wednesday after the closing bell.
