In late October, Tesla’s share price surged past $1,000, giving the electric vehicle manufacturer a market capitalisation of more than $1trn. The company was the sixth in US history to achieve this valuation milestone.
As for which will be the seventh US company to achieve a $1trn valuation, that’s hard to predict. There are several companies in the mix. However, there’s one in particular I have my eye on. I think there’s a decent chance it could be next to hit that marker for the first time.
The next $1trn company?
The company is Nvidia (NASDAQ: NVDA). It’s a technology firm that designs graphics processing units (GPUs). These are advanced computer chips designed to accelerate computer workloads. Currently, Nvidia has a market-cap of around $770m, so the $1trn mark isn’t that far off.
Nvidia is powering the technology revolution
While Nvidia’s high-performance GPUs were traditionally used in the video gaming industry, today they are increasingly being used in other areas of technology.
One is cloud computing. Here, major cloud providers such as Amazon and Microsoft are using its products to boost their computing power and accelerate workloads.
Another area is artificial intelligence (AI). With AI, an enormous amount of data needs to be processed. GPUs are ideal as they have the power to dramatically speed up computational processes.
Virtual reality (the metaverse) and crypto mining are two more areas of technology that are turning to GPUs for computing power.
Given that all of these areas of technology look set for strong growth in the years ahead, Nvidia seems well-positioned, in my view. Ultimately, it looks set to drive the next era of computing. That’s why I think it has a chance of hitting the $1trn target.
Strong growth
Nvidia’s growth in recent years has been nothing short of phenomenal. Between FY2016 and FY2021, revenue climbed from $5bn to $16.7bn. That represents a compound annual growth rate (CAGR) of 27%. Meanwhile, in the company’s recent Q2 FY2022 results, it posted revenue growth of 68%.
Looking ahead, Wall Street expects the company to continue growing at a rapid pace. For FY2022 and FY2023, analysts expect revenue of $25.8bn and $29.1bn respectively.
If Nvidia continues growing at this rate, it probably won’t be long before the $1tn threshold is breached.
Can it hit $1trn?
Of course, there’s no guarantee that Nvidia will do so any time soon (or at all). Over the last three years, its share price has had an amazing run, rising around 460%. After that kind of performance, there’s always the chance of a significant pullback, especially if we see some weakness in the tech sector. There’s every chance we could see the stock return to a $500bn market-cap before it rises again.
It’s worth pointing out that the industry Nvidia operates in is both highly competitive and extremely dynamic. In this industry, products can become obsolete very quickly. To grow further, the company will need to continue innovating.
I think the growth story looks pretty exciting, so I’ve bought the tech stock for my Stocks and Shares ISA. I think there’s a genuine chance NVDA could be the next $1trn US company.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares of Amazon, Microsoft, and Nvidia. The Motley Fool UK has recommended Amazon and Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
This post was originally published on Motley Fool
