Tom Lee is a seasoned equity research analyst and Managing Partner of Fundstrat Global Advisors. A few months ago, Lee provided an update on the outlook for semiconductor giant Nvidia (NASDAQ: NVDA).
Nvidia’s performance over the past two years has been unprecedented. The excitement surrounding artificial intelligence (AI) has led to a generational surge in demand for Nvidia’s data center services and graphics processing unit (GPU) chipsets. While it would be natural to think that Nvidia’s momentum would slow down at some point, Lee is looking at things differently, claiming that the company aims to grow 10x from current levels over the next 10 years.
Below, we explore the bull and bear cases surrounding Lee’s 10x forecast for Nvidia. After carefully considering all angles, we hope investors now have more knowledge about both the catalysts and headwinds that could impact Nvidia over the next decade.
If you followed my articles during the AI boom, you know that I see November 30, 2022 as the unofficial start date for the AI revolution. Why so specific? That’s because it was the day OpenAI released ChatGPT to the general public, sparking a long-standing global phenomenon. In many ways, I liken the launch of ChatGPT to the early days of Facebook and the birth of social media.
Look at the slope of the lines showing Nvidia’s revenue, net income, and free cash flow over the past two years (the start date shown above is November 30, 2022). Nvidia’s accelerated growth is driven by unparalleled demand for GPU chipsets. It is no exaggeration to say that it is “unparalleled.” Nvidia has captured an estimated 90% of the GPU market, and there’s plenty of reason to believe the company’s momentum is just beginning.
According to industry research, investments in AI infrastructure are expected to exceed trillions of dollars in the coming years. Nvidia’s new Blackwell GPU architecture, combined with a successor product called Rubin (scheduled for release in 2026), positions the company to gain even more market share as its AI investments continue to grow.
Nvidia’s pace of innovation, combined with its strong financials backed by consistently increasing profits, makes it difficult to accept any pessimism about the company. Nevertheless, smart investors know there are still stones to turn over before betting on NVIDIA.
One of the reasons Nvidia’s GPU sales have skyrocketed is due to how the company’s technology stack actually works. As you know, Nvidia’s GPU (hardware) runs on the company’s Computing Unified Device Architecture (CUDA) software. This tight integration makes it extremely difficult for companies to leverage other chip manufacturers’ products and services.
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As I mentioned in this article a few months ago, there’s a good chance the Department of Justice (DOJ) will decide to investigate NVIDIA’s business practices, given that NVIDIA is likely becoming a monopoly . Translation: The government could force Nvidia to loosen its grip and make its CUDA system more flexible so it can work seamlessly with GPU hardware developed by other companies. If that happens, Nvidia’s growth rate will likely slow and the company’s market share will likely begin to shrink.
Admittedly, the above ideas are more rooted in speculation than reality. But the more real headwind facing NVIDIA comes from competition.
Nvidia’s biggest customers include cloud hyperscalers such as Microsoft, Alphabet, and Amazon, as well as the “Magnificent Seven” group Meta Platforms and Tesla. While increased investment in AI infrastructure may be good for Nvidia, it’s important for investors to understand that this move could be detrimental to Nvidia. Each of the companies referenced above is known to be investing in their own chips or supplementing their Nvidia GPUs with lower-cost alternatives, namely chips provided by Advanced Micro Devices.
Image source: Getty Images.
At the end of the day, I think it’s highly unlikely that NVIDIA’s valuation will increase 10x over the next 10 years. While I remain bullish on the company overall, I simply struggle with how the company’s growth can continue to generate multibagger-style profits over the next few years.
To me, NVIDIA remains a solid stock for exposure to the AI industry, but asking for 10x growth is a bit much to ask given direct and internal competition, plus the possibility of government intervention. I think so.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Adam Spatacco has held positions at Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
Tom Lee Predicts NVIDIA’s 10x Boom: Analysis of the Bull and Bear Cases was originally published by The Motley Fool.
