Nvidia: How Higher Can It Go?
Nvidia has something special: Right incentives created so much wealth in a short time. This creates a virtuous cycle. Once it's in place, sky is the limit.
If we kept score, I believe we would see that the biggest mistakes in the life were based on two categories of assumptions:
It couldn’t go worse.
It couldn’t go better.
When we find ourselves in a situation that is disproportionately good or bad, we tend to think it should be something exceptional and it shouldn’t get much worse or better.
Yet, this is a mistake because what we deem disproportionate only seems so in comparison to our past experiences, and our past experience is never definitive.
Peter Lynch puts it best:
Two of the most dangerous things people say about stocks are;
1) If it’s gone down this much already, it can’t go much lower.
2) It’s already gone up too much, it can’t go any higher.
- Peter Lynch, One Up On Wall Street
It’s indeed true. Just look at this:
At the point indicated above, around 2018-2019, Apple stock had already made 80x in the last 20 years. Looking at the chart, many people thought it couldn’t go higher.
How do we know this? Market was also pricing it at just 12 times earnings, indicating its inconfidence in the stock.
It has made 4x since then.
The opposite also tends to hold true.
People regarded Kodak as an unbreakable monopoly in the 1980s. Nothing was too high to pay for this company's shares. Stock touched all time highs in 1997 and never saw those levels again. It would go bankrupt just 15 years later.
I think many people are making the same mistake with Nvidia.
Nvidia: How Higher Can It Go?
I asked this question many times to myself in the last twelve months and I always reminded myself that it could always go higher.
There is never a limit on human euphoria or fear.
Thus, price itself is never a good indicator.
The real question is, “how better can the company do?”
And I thought it was unlikely that Nvidia would do much better than it had already done.
After all, it already had around 94% market share in data center GPUs, it didn’t have much to gain but had much to lose.
This is why I sold my Nvidia shares at around $100 last year and took a favorable position on AMD.
There is nothing wrong with that. AMD is a great company and it’ll likely perform even better than I expected.
But I was wrong about Nvidia…
No, it’s not because the share price has exploded since then, I am writing this because I am literally stunned by the pace they innovate.
Just at the moment we started to think there wasn’t much room for explosive growth in B2B sales and competitors like AMD can now start catching up, Jensen Huang came into the stage in CES 2025 and casually threw out bunch of revolutionary products that any company would have spent years developing each one:
Personal AI supercomputer that is capable of training and deploying “homemade” AI agents.
AI models that create a simulation environment to train autonomous vehicles and humanoid robots without real world exposure.
Operating systems for autonomous cars that will likely be expanded to the whole robotics industry.
Next-gen graphic cards based on Blackwell for gamers, developers and creators.
These are not small incremental developments that most companies live on.
I am telling you, each one of those are revolutions in themselves.
Take a simulation environment for instance, Nvidia calls it “Cosmos.”
The single largest limitation in training autonomous systems is that we need to train them on driving data of the real human drivers and we need to expose them to real world conditions to develop all the necessary reflexes.
This will no longer be needed. AI itself will create an environment that simulates the world and models can be trained and developed there. We will teach them how to drive without putting them in real traffic.
Does that remind you of something?
Nvidia is rapidly conquering all possible aspects of the AI Revolution. This isn’t how it normally happens.
Normally, a company comes up with a revolutionary product, others build new revolutions on it and it spends its time defending its position.
Think about Intel.
Its products made the computer revolution possible but it didn’t go beyond that. Other companies like Apple, Microsoft, Google made new revolutionary products enabled by chips and those products themselves have become the new infrastructure for next-gen products.
Nvidia made the AI revolution possible, but it’s not stopping there. It’s also building the infrastructure of the AI era in many fields while competitors like AMD can’t even start thinking about those and still trying to match its chip game.
This is something exceptional and you can’t force your way into it.
It's the urge to innovate. Without that urge pervading the whole entity, you can’t sustain that pace of innovation.
How does it happen?
How does Nvidia keep innovating so much faster than the competitors while it’s already so much better.
Well, how does the US do that?
Explain the US, you will have explained Nvidia.
Nvidia’s Story Is The United States’ Story
Why does the US keep innovating faster than other countries despite being way more advanced?
Think about that.
The US has been leading in technological innovation since the end of World War II, yet all the breakthroughs keep coming from the US.
Computer revolution.
Rise of personal computers.
Internet and wireless technology.
Mobile revolution, and wearable computers.
Now, we are staying on the edge of another revolution: Artificial Intelligence and technologies it’s going to enable such as autonomous driving, humanoid robots etc…
Companies leading this revolution?
Nvidia, OpenAI, Microsoft, Google, Amazon, Anthropic, Tesla… They all are US companies.
As you see the US is literally anchored at top as the largest economy in the world despite the rest of the list kept changing in the last 30 years.
Why does this happen?
Well, modern political economics says that the difference in economic development between countries largely stems from their institutional differences.
Developed countries are developed because they have inclusive institutions.
Underdeveloped countries are underdeveloped because they have extractive institutions.
Inclusive institutions allow people to embark on economic activities on a level playing field through the extensive protection of personal property, contracts and enforcement of the free market. Extractive institutions force people to create wealth to be extracted by elites.
Inclusive institutions breed economic growth because people are allowed to keep what they make. Extractive institutions don’t create sustained growth because people lack incentives to work and create more. They know the excess they create will also be taken away from them.
South America is underdeveloped because when the Spanish arrived on the continent, the land was densely populated by Maya, Aztecs and Incas. Spanish could force them to create wealth to be extracted. They established extractive institutions and those persisted throughout centuries.
The US is developed because when the first colonists arrived from Britain, they found an empty land. They couldn’t force anybody to work for them. The Virginia Company tried forcing colonists to work for a while but this didn’t work because they had no reason to capitulate. They didn’t have a family to protect by accepting forced labor and they could easily escape to inlands.
What did they do then? They set incentives.
They distributed land to the colonists and allowed them to keep what they make after tax. This was called “The Headright System.”
What would you do if you knew you would keep the fruits of your labor? You would work harder.
You would work harder for yourself, to have better conditions in the future. You would work harder for your family to have better conditions after you. So they did. And these institutions persisted, becoming even more inclusive over time, making the US the most advanced economy in the world.
What does it have to do with Nvidia?
Well it has everything to do.
The problem with modern companies is that they are essentially extractive. You hire employers and it might be a fair deal. But when that employee goes above and beyond, creating extra wealth, it stays with the company.
In the worst organizations, employees get nothing for extra performance.
A bit better organizations award bonuses to those going above and beyond.
The best organizations today also offer stock options, a part of the company, to performing employees.
Well, even in organizations that have adopted the stock options, the amount awarded remains minimal compared to the wealth over achievers create.
This creates a lack of incentives for employees.
If you are a small company, you can generate growth on the shoulders of some visionaries and intrinsically motivated people. But for trillion dollar companies, everybody should be pushing forward to make a difference.
Most don’t have this, Nvidia has this.
Nvidia is worth a staggering $102 million per employee. This is something unprecedented.
As a natural result of this, now 78% of Nvidia employees are millionaires and 50% of them have more than $20 million.
This is insane.
Those people haven’t just created an immense amount of wealth, they are also keeping it.
What’s even better is that all of it happened so suddenly that everybody now knows it’s doable.
Indeed, it’s not unusual for successful tech companies to mint many millionaires but +$20 million was something you would expect to make in a long time, like +15 years, provided that you kept getting promoted and the company remained successful. Thus, in companies like Intel, only already self-motivated people who were prone to stay in the same company forever achieved this. This significantly reduces the effectiveness of incentives.
In comparison, all the engineers who joined Nvidia 5 years ago are now multimillionaires.
Of course this didn’t happen by design.
Jensen Huang owns very little of Nvidia compared to how much of their companies other tech founders like Mark Zuckerberg Elon Musk own. Nvidia remained a mid-size tech company until 10 years ago and thus it aggressively used stock rewards to attract the top talent. This diluted the CEO and other investors, and it made employees incredibly rich when the demand exploded for their products after the launch of ChatGPT.
However luckily, it happened.
Now employees look at each other and they know that a big move in the company’s stock also means a big move for their net worth. Newcomers look at how wealthy the seasoned ones are and they know the only way they will also be like them is by pushing the company forward.
Result? This is not a company rising on a few visionary leaders anymore, it’s an economic machine where people are exceptionally incentivized to do phenomenal work, go above and beyond and work harder than their peers working in the competing companies.
Nvidia is to the business world what America is to the real world.
Just like all the talented people flocked to the US in the 20th century seeking the American Dream; the top minds of our generation are flocking to Nvidia seeking their personal dreams.
All of those newly hired geniuses in Nvidia are now contemplating next 100 moves that would make Nvidia valued at $10 trillion, so they can also get ultra wealthy just like those before them.
Can Nvidia Become A $10 Trillion Company?
Yes, it can. Plain and simple.
It’s a bad habit among investors to assume hot companies could grow so big so fast without regard to the total addressable market.
The main point with Nvidia is that the pie being baked right now is big enough to make it a $10 trillion company.
The AI chips market is estimated to reach nearly $1 trillion by 2034.
How much market share do you think Nvidia will have?
On top of that, consider that Nvidia is preparing to be the main infrastructure provider in the age of AI.
It’s building artificial worlds to train autonomous vehicles and robots.
It’s paving the way for personal supercomputing.
Creating operating systems of Physical AI.
Now consider that Microsoft today owes half of its market cap to being the dominant operating system provider to personal computers. If that can unlock $1.6 trillion value, how much more value do you think being the operating system for all AI applications will unlock?
It’s massive.
The question is not whether this value will be created or not, it’s already in the oven. The question is, how much will Nvidia capture? To capture much of it, it should keep innovating at this pace for long periods.
How long could it keep doing this is the real question, and it’s a difficult one. Sure the effectiveness of the incentives in place now will wane if the company stagnates a little longer than its hot-blooded young geniuses could perform at the top level without disappointment.
This doesn’t mean it can’t. After all, the same structure has been keeping American Dynamism alive for nearly 250 years. Why wouldn’t it keep Nvidia going a few more years?
Does this mean we should bet on Nvidia now? I don’t think so.
A good investor knows when he is speculating and when he is not. Despite all my optimism and good reasons to be optimistic about its foundations, I am essentially speculating. Regardless of whether it’ll come true or not, I don’t want to bet on speculation. You should always keep that door closed.
But… If we get a correction, market wide or stock specific, I know I will pull the trigger.
Nice rundown of NVIDIA as a whole.
It was really interesting to see how quickly the company exploded, and how much investors made from it. It's one of the few cases where the financials and innovation pretty much match investor opinion.
I personally sold out of my position near its peak since I did not expect it to continue at such a pace, but who knows I could very well be wrong. It'll be an interesting watch in the coming years
Wonderful article, Oguz.. very informative and eye-opening, I would say 👏👏 You explained Peter Lynch's theories quite well i.e.,
a. If it’s gone down this much already, it can’t go much lower.
b. It’s already gone up too much, it can’t go any higher.
Our personal preferences and biases come in when we are faced with a situation as above and I think, we stop thinking objectively or are driven by data or facts. Well worth the read and Thank you for sharing such a wonderful piece and your own experiences on the above.. 🙏