Will Nvidia Reach $4 Trillion? 3 Reasons It Could Happen by the End of the Year.

But there are bearish arguments against the stock. First, some investors believe that competition will eventually erode Nvidia’s advantage. However, AMD and Intel have already launched their competing AI accelerators, and so far, they do not seem like a threat to Nvidia.

AMD stock fell after its third-quarter earnings report due to disappointing guidance, and it said it would lay off 4% of its workforce. Intel, meanwhile, faces a wide range of challenges after announcing a massive restructuring in August.

Nvidia’s data center revenue run rate has now reached $120 billion, and with built-in competitive advantages like its CUDA software library, catching it may be impossible.

Another bearish view cites concerns about an “AI bubble” forming as Wall Street is anxious to see more revenue from Nvidia’s customers, including cloud hyperscalers.

But the chipmaker’s report should push back on that narrative as well because the company is experiencing demand from a wide range of companies, which are using AI for purposes well beyond large language models.

Asked about scaling limitations on large language models, CEO Jensen Huang responded that scaling up is continuing and is going beyond its conventional focus in training to post-training and inference.

While a risk of a bubble forming always exists in any high-growth asset class, Nvidia’s results indicate there’s no sign of a pullback so far, nor do there seem to be underlying structural concerns.

After the third-quarter report, Nvidia now trades at a trailing price-to-earnings ratio (P/E) of 55, which is roughly double that of the S&P 500, but the business is growing so fast that trailing metrics don’t really tell the story.

It reported adjusted EPS of $0.81 in the third quarter, and extrapolating that over four quarters would give you a P/E of 44, which seems to be a more accurate reflection of its existing valuation.

Even forward estimates don’t seem to be the best indicator, since Nvidia regularly tops them. Currently, the consensus calls for earnings of $4.31 per share in fiscal 2026, which ends in January 2026. Based on that forecast, the stock has a forward P/E of just 34.

Over the last four quarters, however, Nvidia has beat consensus EPS by an average of 9%. If it continues that pattern, the company will deliver EPS of at least $4.70 next year, giving it a forward P/E of 31, nearly on par with the broad market.

Those ratios don’t even factor in the chipmaker’s soaring growth as its EPS is still doubling on a year-over-year basis.

To reach a market cap of $4 trillion, the stock would only have to gain 14% from here, which seems very possible by the end of the year.

Nvidia just delivered another flawless round of results, and it remains the dominant force in the next major computing platform. The company will get to a $4 trillion market cap at some point. The only question is when.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.

Will Nvidia Reach $4 Trillion? 3 Reasons It Could Happen by the End of the Year. was originally published by The Motley Fool