According to a report by the Financial Times on Tuesday, one of the most successful tech investors said Nvidia (NASDAQ:NVDA) could be worth almost $50 trillion in a decade.
The number represents more than the combined current market value of the entire S&P 500.
However, the publication reported James Anderson, well-known for his early bets on companies such as Tesla (NASDAQ:TSLA) and Amazon (NASDAQ:AMZN), as saying that "the potential scale of Nvidia in the most optimistic outcome is both way higher than I've ever seen before and could lead to a market cap of double-digit trillions."
"This isn't a prediction but a possibility if artificial intelligence works for customers and Nvidia's lead is intact," he reportedly added.
Nvidia has been a primary beneficiary of the surge in chip demand following the emergence of generative AI. Its shares have surged over 175% in the last 12 months, pushing its market capitalization above the $3 trillion mark.
Anderson, who recently teamed up with the holding company of Italy's Agnelli family to launch Lingotto Investment Management, said Nvidia's "persistent exponential progress, the competitive advantages in hardware and software, and the culture and leadership are exactly what we look for."
When assessing the difference between Nvidia and some of his previous successful tech bets Anderson notes: "Amazon, Tesla etc didn't start from highly profitable and dominant positions but had to get there".
He explained that the real growth in data center AI chip demand looked to be running at about 60% per year. When assessing the next decade, he stated that 10 years of 60% growth in data center revenue alone, with unchanged margins, would result in earnings of $1,350 per share and free cash flow of approximately $1,000 a share.
The FT said Anderson remarked that an Nvidia share might be worth $20,000 in 10 years, translating to a market capitalization of $49 trillion. Anderson assigned the probability of this type of outcome at 10% to 15%.
He added: "It is the long duration of the development of GPU usage in AI — and not just AI — from excitement, through potential pauses, to transformation of industries that is most important to us."
Anderson believes the route to the extremely lofty valuation will likely be volatile, and it would not be surprising if the chipmaker had one or more significant drawdowns.