Prediction: Nvidia Will Be Worth $6 Trillion by the End of 2026
Key Points
Nvidia's valuation has plummeted over the past three years as its revenue, profits, and stock price have soared.
AI spending isn't drying up, and investors should soon realize how undervalued Nvidia is.
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I know, I know: Nvidia (NASDAQ: NVDA) is already the largest company in the world, with a current market cap of $5.4 trillion. If its stock rises to about $250 per share, it would make Nvidia the first $6 trillion company in history.
To put that in perspective, at $6 trillion, Nvidia would be worth more than Amazon, Meta Platforms, Tesla, and Netflix combined.
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But given how much Nvidia's revenue and earnings have grown, and how much CEO Jensen Huang has done to ensure the company's long-term dominance, it's actually kind of amazing that the company isn't already trading at $250 per share ... or more.
Here's the simple math that explains why I'm predicting a $6 trillion market cap for Nvidia by the end of the year.
Image source: Nvidia.
All about value
Over the last three years, Nvidia's revenue, profits, and share price have all soared, but its valuation has actually dropped. Its price-to-earnings (P/E) ratio, which stood at about 100 times trailing earnings three years ago, has now dropped to 34. Its price-to-sales (P/S) ratio, which was at about 35 times sales, has tumbled to 22 over the same time frame.
And that's just on a trailing basis. If we look at the company's projections for revenue and net income, Nvidia is currently trading at 25 times forward earnings and a mere 14 times sales. Both its trailing and forward P/E ratios are much lower than those of less-successful chipmakers Intel and Advanced Micro Devices, and are even lower than Apple's.
In Nvidia's most recent quarter, revenue was up 85% year over year, and net income was up 211%, beating expectations. The spending boom in artificial intelligence (AI) shows no signs of slowing. Although Nvidia's share price is up just 22.5% over the past year, investors should soon realize how much of a bargain Nvidia is at its current price.
That's why I'm predicting we'll see Nvidia's stock hit $250 per share and a total market cap of $6 trillion before the end of December.
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John Bromels has positions in Amazon, Apple, Meta Platforms, Netflix, Nvidia, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, Intel, Meta Platforms, Netflix, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
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