Managed tech investor says Nvidia could achieve $50 trillion market cap in a decade

FT essayist Roula Khalaf picks her favorite stories on this weekly e-newsletter.

One of the most successful tech buyers said chipmaker Nvidia would be worth almost $50tn in a decade – more than the mixed flow market value of the S&P 500.

James Anderson, known for his early stakes in companies such as Tesla and Amazon, said: “In the most optimistic outcome, Nvidia’s potential scale is unlike anything I’ve seen before and could double its market capitalization.” -Digit trillion. This is not a prediction but a possibility if artificial intelligence works for customers and Nvidia’s lead remains intact.

Nvidia has been the beneficiary of a surge in demand for chips that can train and run robust generative AI models, like OpenAI’s ChatGPT.

Its shares have surged 162 per cent since the start of the hour, pushing the chipmaker’s market value above $3tn – nearly 20 times the $150bn worth the company was valued at in August 2018 when Apple became a trillion-dollar fortune. The primary corporate to pass the assessment.

Nvidia, whose executive Jensen Huang has declared the company to be at the center of an untapped “industrial revolution,” overtook Microsoft and Apple in June to become the region’s most trusted publicly indexed company.

The company’s “continued rapid growth, competitive advantages in hardware and software, and culture and leadership are exactly what we want”, said Anderson, who later teamed up with Italy’s Agnelli people-owned company to form Lingotto. Founded Funding Control, where he runs a $650 million treasury whose largest position is a US chipmaker.

Anderson is best known for the nearly four decades he spent at Baillie Gifford. There he ran his flagship Scottish loan funding venture, Believe, which first bought Nvidia in 2016, and helped transform the Edinburgh-based individual partnership into an unlikely superstar of investing technology.

When Scott Loan started a position at Nvidia, “it wasn’t clear what the main driver would be – we didn’t decide whether it would be gaming, crypto, autonomous driving or AI, but left it to the course of events”. , said Anderson.

The fat line between semiconductor makers and some of their alternative success bets is that “Amazon, Tesla, etc. didn’t start out with highly profitable and dominant positions, but they had to get there,” he said.

The biggest influence on Anderson and Baillie Gifford’s funding process has been director Hendrik Bessembinder, who discovered that only 4 percent of the shares accounted for all the net wealth of the establishment over several decades – which provided the root for their belief. Treasury managers should seek out companies that will be ultimate winners.

Anderson explained in a letter to buyers this hour why Nvidia belongs in this segment.

He wrote that the real growth in demand for information center AI chips appears to be working out to about 60 percent per hour. Looking over the next decade, he said that in 10 years the 60’s with varying percentage growth in the information center’s income and with unchanged margins would translate into an income of $1,350 and a free cash flow of about $1,000 per year. will be. Assuming independent money stream turnover of 5 per cent, the Nvidia ratio would be valued at $20,000 in 10 years, implying a market capitalization of $49tn. Anderson placed the probability of such an end result at 10–15 percent.

The stream combined market capitalization of all companies in the S&P 500 is approximately $47tn.

“It’s the long term evolution of GPU use in AI – and not just AI – from excitement, through potential disruptions, to the transformation of industries that is most important to us,” Anderson said.

He further said that the path is likely to be volatile and he would not be surprised if Nvidia dropped 35-40 percent – ​​”That is what happens and I expect we will buy more in that situation”.

Nvidia has recently been trading at more than 47 times its estimated earnings ratio for the next hour and accounts for nearly 30 percent of the S&P 500’s 17.7 percent for the hour.

The growing influence of Nvidia and the biggest tech “megacaps” on broader market indices has created challenging circumstances for treasury managers who don’t hold them. Terry Smith’s World Treasure, for example, lagged behind its benchmark within the first half of the hour, later opting to stay away from the chipmaker, with the result that “we have yet to convince ourselves that its The outlook is as predictable as we are “looking”.

Addressing the question of whether generic AI has been overhyped, Anderson said, “Narrow generic AI for basic and consumer tasks may be overhyped, but we see the larger issue “Can it solve serious problems in 10 years”, along with autonomous driving, robotics and drug discovery. “And in that sense it is the opposite of propaganda. , , Nvidia is quietly but firmly leading the way in supporting and providing these areas.

This newsletter has been corrected to mention that James Anderson has a fortune of $650 million, no longer $650 billion, as previously stated.