Nvidia CEO Jensen Huang reaffirms his $4 trillion projection for AI spending. Here’s why that makes Nvidia a screaming buy now.

A little over a year ago, Nvidia (NVDA -0.59%) CEO Jensen Huang made a bold projection: He informed investors that Nvidia expects global data center capital spending to reach up to $4 trillion per year by 2030. What’s even more impressive is that the floor he gave for this projection was $3 trillion. He recently reaffirmed this prediction.

These are huge numbers, but what could they mean for Nvidia stock?

Jensen Huang, CEO of NVIDIA. Image source: Nvidia.

Nvidia could become a much bigger company in a few years

This year, Nvidia expects the big five AI hyperscalers alone to spend nearly $800 billion on data center capex. This does not include the many smaller players building their own AI infrastructure. I think it’s reasonable to estimate that total data center investments will be around $1 trillion this year, meaning Huang’s projection says the market will triple or even quadruple by 2030.

As a guide, let’s say that Nvidia can maintain its market share. I think this is a conservative estimate because a significant portion of current AI investment is going into building data centers rather than filling those facilities with chips and servers. Data centers take a while to build, so the back half of the build will be more loaded with chips. This tilt would offset any potential loss of market share for Nvidia’s GPUs as other companies’ custom AI chips become more popular.

This year, Wall Street analysts estimate that Nvidia will generate $412 billion in revenue. If Nvidia’s revenue could triple or even quadruple based on these estimates, that would put its revenue at between $1.2 trillion and $1.6 trillion per year.

Let’s assume that Nvidia can generate a profit margin of 50% (its current level is 64%); this would indicate between $600 billion and $800 billion in profits. At a valuation of 30 times earnings, Nvidia would have a market capitalization of $18 trillion to $24 trillion; it is currently an approximately $5.4 trillion business.

I’m not saying Nvidia will generate that kind of huge growth. Still, if the market it serves grows as Nvidia expects (and its position as a key supplier gives it far more insight into the long-term development trajectories of its customers than investors have access to) and Nvidia maintains its market share, that would indicate that the stock has enormous upside potential ahead.

I think Nvidia is one of the best buys on the market right now, and it’s time to take advantage.