What if Nvidia became the world’s largest market capitalization?

(BFM Bourse) – The graphics processor specialist experienced a huge rally at the start of the year, while generative artificial intelligence continues to charm investors. To the point of overtaking Apple and Microsoft in the future?

Big winner on Wall Street in 2023, with a jump in its price of 240%, Nvidia is still a winner over the whole of 2024. The specialist in graphics processors (GPU) gains almost 15%

since January 1st.

Nvidia has been buoyed by several factors recently, including its management’s optimistic comments on demand, the announcement of new GPUs for personal computers at the Consumer Electronic Show (CES) in Las Vegas. Or even press information from Reuters reporting that the group would market in the second quarter a graphics processor respecting the restrictions on exports to China put in place by the United States last fall.

More broadly, Nvidia has benefited for a year now from the market’s enthusiasm for generative artificial intelligence (AI). Its products are, in fact, used to provide computing power to train and develop the ChatGPT (OpenAI) and Bard (Google) conversational robots. This translates into sharply increasing demand and the explosion of its financial results. According to the Bloomberg consensus, analysts expect the group to report an increase in revenue of 230% in the fourth quarter year-on-year, after a jump of 206% in the third.

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A gain of 128 billion dollars in nine sessions

According to Bloomberg data, Nvidia added $128 billion in market capitalization over the first two weeks of trading on Wall Street, an average of $14.2 billion per day. Extrapolating this average over the roughly 250 days (approximately) that Wall Street is open each year, Nvidia would gain $3.5 trillion in market capitalization in 2024, more than the total value of Microsoft’s shares ($2.903 billion) or Apple (2.904 billion), the two largest groups on the stock market in terms of capitalization.

Obviously, this fanciful projection makes little sense, because it is unlikely that Nvidia will continue its frenzied stock market rally throughout 2024. Even major “re-rating” movements (appreciation of stock market multiples) have phases. breathing beyond the very short term.

However, a question may arise in view of Nvidia’s dizzying rise on the stock market: can the company founded by Jensen Huang, in the medium term, become the largest market capitalization in the world?

Currently Nvidia is sixth with just over $1.4 trillion, fast approaching Amazon (fifth with $1.576 billion) and Alphabet (fourth with $1.795 billion).

The Gafam may not like

Questioned, Dan Ives, technology sector analyst at Wedbush Securities, believes that Nvidia will not dethrone Apple and Microsoft in the coming years, because the two members of Gafam (Google or Alphabet, Amazon, Facebook or Meta, Apple and Microsoft) have still trump cards up their sleeves. This will not, however, prevent Nvidia from having a good stock market performance.

“Jensen and Nvidia are the godfathers of AI and we believe Nvidia will lead this AI revolution over the next decade. We see Apple and Microsoft as the first $4 trillion market caps in the world. “by 2025 and Nvidia could, over the next decade, experience a dazzling trajectory”, explains the analyst to BFM Bourse. “The AI ​​revolution will be led by Nvidia and we believe it will be one of the most valuable companies in the world over the next few years,” he adds.

Frédéric Rozier, manager at Mirabaud France, also responds in the negative. “I don’t believe in it for a simple reason: Gafam, who are Nvidia’s major customers, will not ultimately agree to depend heavily on a single supplier. Gafam will at least segment the market on graphics processors (by product quality category) and probably do everything to compete”, develops the market expert.

“At present, AMD’s graphics processors are, for example, narrowing the technological gap with Nvidia’s products,” he continues.

In the BFM Bourse show, Céline Piquemal-Prade, general manager of Piquemal Hougthon Investments, pointed out a risk for Nvidia. “China is in the process of competing, catching up,” explained the manager, reacting to information from Reuters. The news agency reported that Chinese military bodies and Chinese AI research institutes had managed to obtain copies of Nvidia’s GPUs, despite US bans.

Still potential

If seeing Nvidia catch up with Microsoft and Apple in the short and medium term therefore seems quite unlikely, analysts nevertheless seem to agree on the group’s potential. Their price target is $669 versus a current price of $568, a gap of 17.5%.

Bank of America has a target of $700. According to the American bank, Nvidia could generate 100 billion dollars in free cash flow over the two financial years 2024 and 2025, of which 30 to 35 billion could be used for share buybacks and 65 to 70 billion to take organic measures ( investments to improve or develop products) and inorganic (business buyouts).

Bank of America particularly expects Nvidia to target acquisitions that would allow it to increase the share of its recurring revenues (subscriptions, software). Currently, revenues from subscriptions and software, as opposed to hardware, represent only 2% of its revenues.

External growth operations likely to increase this percentage could further improve Nvidia’s stock market multiples which are surprisingly not that high. According to Bank of America, Nvidia is trading, based on expected earnings and cash flow, at a 20% to 30% discount to the six other groups also belonging to Wall Street’s “magnificent seven” club. , i.e. Apple, Alphabet, Meta, Amazon, Microsoft and Tesla.