Nvidia faces its greatest challenge to date: the law of major numbers

If you are an investor of Nvidia or that you are now thinking about the purchase of his actions, it is important to recognize that the threat to obtain something that looks like big yields is not a strong dependence on a few large customers or Chinese rivals who play a catch -up, but the law of large numbers. In simple terms, Nvidia’s market benefits and market capitalization are already so gigantic that to reward shareholders, it should inflate to a waistwashing where any technology giant is today, and adding profits to a rate, measured in billions of dollars, which no other major company, established has ever reached.

The figures that Nvidia must hit to make money are intimidating

Suppose that the minimum return you want from NVIDIA shares is 10% per year. Keep in mind that you would bet on a player who will only pay himself if he spreads extremely quickly from an already high P / e and a market capitalization, and therefore you take a great risk that will occur – therefore, even 10% resembles a rather spectacular victory. Nvidia currently has the largest assessment of any American company, with $ 4.44 billions, beating Microsoft second in 19%. In the last four quarters, he won $ 86.6 billion, putting his p / e at 51 years. It does not seem horribly expensive – in the first. But again, the big challenge is the law of large numbers, the virtual impossibility that when you are already so large, you will become extremely larger, and especially when you have to add all these new profits swallows at an extremely fast pace.

Consequently, to provide this annual return by 10%, NVIDIA should double its market capitalization by September 2032 to 8.88 billions of dollars. (Nvidia has just announced a share repurchase of $ 60 billion and will continue to buy the shares, but the figures should not be important compared to its valuation; therefore to simplify, I use a model where the number of shares is constant. Bogey for net earnings of income at $ 293 billion (the market capitalization of 8.88 billions of dollars divided P / e of 30).

If inflation is on average 2.5% for the next seven years, this 293 billion dollars is equivalent to $ 246 billion in today’s dollars. It has been 112% more than the $ 116 billion than Alphabet, the best employee of the S&P 500, posted in the last four quarters, and almost 150% above what Microsoft recorded for its 2025 financial year ended in June. Ring the bell requires an annual average addition in profits of $ 26 billion. In the last three years, Microsoft and Alphabet have shown an expansion of the profits of the eruption, but not on this scale; Both raised the essentials between $ 13 billion and 14 billion dollars a year, half of what Nvidia would need to encroach to provide this minimum gain of 10%.

The problem: Nvidia’s actions can only bear fruit if a number of heroic projections that CEO Jensen Huang really occur. Huang predicts that IA infrastructure expenses by hyperscalers’ balloons of around $ 600 billion a year today at “3 to 4 dollars … at the end of the decade”. At the top, it is a growth rate of around 40% per year. This prediction assumes that the budgets of capital expenditure for Microsoft and Meta will absolutely explode, which implies that they will also reach a new escape speed in the expansion of income. The margins of Nvidia should also remain extremely high for the large manual for invesesters to come true.

A warning panel is that quarterly growth from one year to Nvidia, although still huge, is already down. Certain laws of gravity always apply with regard to the commercial strategy, including that if a company is sufficiently profitable, competition will increase. The infrastructure of AI is so extremely profitable that the rivals will flood the market, taking part of Nvidia and eroding its margins. He will have to considerably diversify his customers from the high concentration on a few giant customers to continue to race, and the competitors will compete for the same large customers.

Even large companies do not keep almost monopoly positions for a long time. This is simply not the way the markets work. The best bet is that Nvidia remains a large fast and very profitable growing business. It is an extremely impressive feat. But it is not enough to beat the law with large numbers.