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Written by Trevor Jennewine for The Motley Fool->
Custom chips designed by companies like Broadcom and Alphabet are not the existential threat to Nvidia GPUs that critics claim.
Morgan Stanely recently raised its capex projections for the five largest hyperscalers as they continue to invest heavily in AI infrastructure.
Altimeter Capital CEO Brad Gerstner says Nvidia will be a $10 trillion company, and I/O Fund analyst Beth Kindig says it will be a $20 trillion company.
Nvidia (NASDAQ: NVDA) is the center of gravity for the artificial intelligence revolution. The stock has added 15% year to date, outpacing the 8% return in the S&P 500 (SNPINDEX: ^GSPC), and Wall Street analysts still think it's undervalued. The median target price of $267.50 per share implies 24% upside from the current share price of $213.
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Nvidia graphics processing units (GPUs) are the industry standard in accelerating artificial intelligence (AI) workloads. Nvidia systems consistently outperform alternative infrastructure solutions at the MLPerf benchmarks, objective tests that measure performance across AI training and inference tasks.
For years, Nvidia critics have warned that ASICs (application-specific integrated circuits) are a big threat to the company's dominance in AI accelerators. Indeed, several customers have designed and deployed ASICs in their data centers, including Alphabet, Amazon, Microsoft, and Meta Platforms. And adoption will almost certainly continue to increase in the years ahead.
However, the idea that custom AI accelerators will materially displace Nvidia GPUs in the near future is absurd. Custom accelerators require custom software development tools that very few companies have the talent and resources to create. And even those with the technical expertise are still at a disadvantage because Nvidia started building its software ecosystem in 2006.
In a recent note, Morgan Stanley analyst Joseph Moore wrote, "We consistently hear that customers see a competitive product as potentially lower cost, put it into use, and come back to Nvidia." As a result, Nvidia captured 86% market share in AI accelerator sales in 2025, unchanged from its market share in 2024, per Bloomberg.
So what? Despite the enthusiasm surrounding custom silicon companies like Broadcom, ASICs did not event dent Nvidia's market share last year. Of course, custom AI chips will almost certainly gain share in the years ahead, especially because demand for compute outstrips supply. But Nvidia GPUs will remain the industry standard for the foreseeable future.
Wall Street analysts have consistently underestimate how much hyperscalers will invest on AI infrastructure. Initially, the consensus estimate initially said capital expenditures (capex) among the top five hyperscalers (Alphabet, Amazon, Microsoft, Meta, and Oracle) would increase 19% in 2026, but it now says capex will increase more than 60% this year.
Morgan Stanely analysts are particularly bullish. Their latest forecast shows capex among the five largest hyperscalers increasing nearly 80% to $805 billion in 2026, followed by 39% growth to $1.1 trillion in 2027. That bodes well for Nvidia, not only because its GPUs are the industry standard in AI accelerators, but also because it leads the market for AI networking.
Brad Gerstner, founder and CEO of Altimeter Capital, says Nvidia is "terribly undervalued" because the market is underestimating demand for AI infrastructure. He recently told CNBC, "I think Nvidia will be the first $10 trillion company," citing its ability to design more cost efficient systems than competitors, including those that use custom chips.
Beth Kindig, lead tech analyst at the I/O Fund, says Nvidia will be a $20 trillion company by the end of the decade. "The key reason that Nvidia can reach a $20 trillion market cap by 2030 is because the company is moving its GPU generation cadence to a rapid 12-18 month cycle, compared to custom silicon, which is typically on a 3-5 year cycle," she wrote.
Here's the bottom line: Nvidia's market value is currently hovering around $5 trillion. So, Brad Gerstner's forecast implies about 100% upside, and Beth Kindig's forecast implies about 300% upside. That is great news for shareholders.
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Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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