TMTPOST -- By the close of August 15, Nvidia’s market capitalization reached an unprecedented $4.4 trillion, making it the first company in history to surpass the $4 trillion milestone. On Wall Street, the enthusiasm is palpable: 58 analysts currently maintain a “Buy” rating on the stock, with an average price target suggesting a market cap of $5.2 trillion.
The big question now is whether $5 trillion represents the ceiling for tech giants in today’s market—or merely a starting line for Nvidia’s meteoric rise.
Nvidia’s record-breaking valuation is anchored in its dominant position in AI chips. Its GPUs and proprietary CUDA platform have become the go-to choice for generative AI leaders like OpenAI, Meta, and Google, effectively cornering the foundational computing power market. This monopoly has translated into outstanding financial performance.
Over the past three years, Nvidia has posted soaring revenue and profit growth. Even after a 20-fold increase in its stock price, the company’s forward price-to-earnings ratio remains a relatively modest 38. Its gross margin stands at 75%, far surpassing other tech titans such as Apple (45%) and Microsoft (68%). The high premium commanded by Nvidia’s top-tier chips underpins this exceptional profitability.
Everything seems to be flourishing, yet history reminds us that no dominance lasts forever.
Looking back at previous technological waves offers insight into Nvidia’s trajectory. During the PC internet era, Intel peaked at a market cap of $500 billion, while Microsoft’s software empire reached $600 billion around the year 2000. The mobile internet era saw Apple top $2 trillion as the leading hardware company and Amazon reach $1.7 trillion as a software and e-commerce powerhouse.
In the generative AI era, Nvidia stands as the dominant hardware company, already exceeding a $4 trillion valuation. Its software counterpart, OpenAI, remains privately held but boasts a $500 billion valuation in private markets. If OpenAI goes public, its market cap could conceivably enter the trillion-dollar range.
This pattern shows that each technological revolution tends to elevate a few leading companies—both hardware and software—into new valuation territory. Significantly, market capitalization often peaks ahead of actual earnings, reflecting the forward-looking nature of capital markets.
While software companies like Microsoft have successfully extended their dominance across multiple technological eras, hardware presents a tougher challenge. Physical assets are costly, and innovation cycles are slower, making it harder to sustain a leadership position. Intel provides a cautionary tale: once the undisputed king of PC and server processors, Intel’s market cap peaked above $500 billion in 1999, yet today it hovers just above $100 billion despite continued product success.
CATL, China’s battery giant, offers a more recent example. Five years ago, analysts projected that its net profit could reach 50 billion RMB within five years, pricing its stock as if a 1 trillion RMB market cap were inevitable. While CATL has indeed met profit expectations, its market cap remains just over 1 trillion RMB—highlighting how valuation multiples compress as growth expectations stabilize.
This underscores a key point for Nvidia: high growth justifies sky-high valuations, but once the market starts discounting future earnings more conservatively, maintaining such multiples becomes increasingly challenging.
Nvidia’s growth is intertwined with the ongoing AI arms race. Major tech companies—including Meta, Microsoft, Google, and Amazon—are expected to invest roughly $400 billion in AI infrastructure in 2025, nearly equivalent to Europe’s entire defense budget. Nvidia, as the primary supplier of the hardware enabling these systems, has naturally benefited from this spending surge.
Yet capital markets are forward-looking. For Nvidia’s market cap to continue climbing, software applications must monetize this massive hardware investment. If upcoming financial results fail to meet shareholder expectations, the sustainability of such heavy AI spending may be questioned.
Even if Nvidia continues to grow profits, it may face structural limits in market capitalization. Trees can’t grow to the sky, and a hardware company’s value is ultimately tethered to the market potential of the software it enables. While Nvidia sells the “shovels” of AI computing, the “gold miners”—the software companies like OpenAI—define the ultimate scale of value creation.
Currently, generative AI software companies still generate revenue in the billions, not trillions. Using Palantir as a benchmark, a $4 billion revenue software company has a $400 billion market cap. Extrapolating this logic, a hardware leader like Nvidia would need corresponding software breakthroughs to justify a $5 trillion or higher valuation.
Looking forward, the next frontier for high-value tech companies may lie in intelligent driving and embodied intelligence—areas where hardware and software intersect in even larger markets. Tesla, for instance, is poised to emerge as a potential $10 trillion company if autonomous driving achieves mass adoption. Humanoid robots and embodied AI systems could redefine the limits entirely, potentially spawning the first $20 trillion tech giant in history.
