Is Nvidia Stock Headed for the Most Valuable Company on Earth?

Nvidia (TSX:NVDA) stock has surged to become the third most-valued company in the United States. So, is the top spot in sight for the tech stock?

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Just one day after passing Amazon as the fourth most valuable company in the United States, NVIDIA (NASDAQ:NVDA) did it again. The semiconductor company passed Alphabet to become the third most valuable company in the U.S.

And yet, analysts predict there is even more room to run. So, is Nvidia stock headed towards becoming the most valuable company in the world?

What happened?

Nvidia stock’s market capitalization surged to US$1.83 trillion on Wednesday, just passing Alphabet’s US$1.82 trillion market cap. The company then slunk back down slightly to US$1.8 trillion as of writing, but so did Alphabet, which now offers a US$1.77 trillion market cap as of writing. So, even after the share price dropped slightly, the company did sit firmly in third place.

This comes just a few days after Nvidia stock passed Amazon stock for fourth place, which now holds a US$1.75 trillion market cap as of writing. But if you think that Nvidia stock is on the way to first place, it still has a lot more room to grow.

Apple continues to hold the second spot in the U.S. at US$2.81 trillion as of writing. That’s even after the tech stock saw Berkshire Hathaway shrink its massive position in the company. Microsoft remains firmly at number one, at US$3.01 trillion. But even so, with investors starting to shake on Apple stock at least, could the company be passed by the semiconductor stock?

Earnings not even out

There are two ways to look at this now. On the one hand, earnings haven’t even come out for Nvidia stock, which could see another rise. However, it could also see another fall. Nvidia stock is going to have to prove that the value in its share price is there.

Nvidia stock has been on a tear already over the last year, as analysts across the board believe it’s the next big thing. And they’re right when it comes to the company’s sector, at least. Semiconductor chips are needed for anything digital. It’s been called the “next oil” by many. And as artificial intelligence (AI) obsession continues to climb, that’s only going to become stronger.

But again, is the value already priced into shares? At this point, even the biggest names in tech have been seeing their shares drop after earnings from small points, whether it’s lower guidance, only slightly beating estimates, or other reasons.

Proceed with caution

Nvidia stock continues to climb and should do so for long-term investors. But from what share price? Investors should proceed with caution when it comes to this stock, as companies that grow rapidly can fall rapidly as well.

Even so, let’s say the stock is to continue to climb more and more over the next year. It would still need to add another trillion in market value to reach the second-place spot. While not unheard of, given it did this in the last year, earnings will provide some clue as to whether it can do it again.

For now, there remains robust demand for semiconductor chips, costing about US$20,000 each. And should the world continue to shift the demand for more cloud services and more AI, it looks like it’s only going to expand. So, yes, there is still room to grow for Nvidia stock, and it can certainly meet the challenge. But could it become the most valuable company in the next year? Honestly, that’s far less likely.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.

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