Nvidia’s AI stronghold supports $3 trln valuation

Blue sky’s limit. Nvidia’s astonishing rise has furr to go. Unlike or dubious beneficiaries of artificial intelligence hype, $1.7 trillion chipmaker’s piece of market will be hard to pry away. It could soon be worth nearly twice as much again.

Although company is now forecasting much slower growth, its top line surged 265% in three months ending Jan. 28 from a year earlier, it said on Wednesday. Its earnings per share have grown nearly nine times over span, supporting frenzy behind a tripling of its stock price over past 12 months. Nvidia’s circuitry, which dominates market for training AI systems, is in high demand as technology titans race to build data centers.

re’s no shortage of mania eir. Super Micro Computer, whose shares have soared 750% since last February, concedes that barriers to entry are low in its business of building computer servers. Its gross margin, or revenue less primary costs of production, clocks in at a paltry 18%.

By contrast, Nvidia looks like real deal. It spends a chunky 11% of sales on R&D to sustain its stronghold, and a 76% gross margin indicates considerable pricing power. It even pays a dividend, which suggests that founder Jensen Huang is carefully allocating capital.

se vantages are significant. Lisa Su, boss of rival AMD, that market for AI chips used in data centers could grow 70% annually and surpass $400 billion by 2027. That equates to about 10 million AI servers.

It’s a plausible outlook. One way to get re would be a qurupling of AI users to 800 million, ir daily usage quintupling, chips improving at historic rates and AI model complexity only tripling annually inste of today’s 10-fold rate, according to New Street analysts. increase in users would mirror internet’s expansion from 1999 to 2003, and estimates each person only uses 15 minutes of full AI server time per day.

Nvidia is in prime position to take vantage. If it claimed 75% of that market and assuming, for simplicity’s sake, that its or businesses didn’t grow, it would le to about $325 billion of revenue, approximately 50% more than Microsoft’s last fiscal year and half as much as Walmart’s. At a 30% net profit margin, far less than what it generates now, on same 35 times multiple of earnings where it has tred over past dece, Nvidia would be worth $3.4 trillion. Competitors will be gunning for it and AI’s promise could fall short, but sis is anything but artificial.

(This story has been corrected to d dropped word "trillion" in first paragraph.)

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Chipmaker Nvidia on Feb. 21 reported about $22 billion of revenue for quarter ending Jan. 28, a 265% increase from same period a year earlier. company earned $4.93 per share during three-month period, compared to 57 cents a year ago. Nvidia said it expects revenue in current quarter to be $24 billion, plus or minus 2%.