Don’t look now, but Nvidia (NASDAQ:NVDA) CEO and co-founder Jensen Huang is the 20th wealthiest person in the world with a net worth of $69.7 billion, up $25.7 billion in 2024 due to the 64% year-to-date return of NVDA stock.
Except for Mark Zuckerberg, Huang’s increase in 2024 is the second highest, $4.5 billion ahead of Gautam Adani, the Indian billionaire who seems to have survived Hindenburg Research’s 2023 short report about many of his companies, their excessive debt, and even the tax havens used to shelter earnings.
Of the 15 billionaires whose net worth has gained over $5 billion in 2024, only three others, Autry Stevens, Eduardo Savarin, and Tadashi Yanai, started the year with less than $50 billion, suggesting Huang’s jump is otherworldly.
As the headline asks, can Huang become the world’s wealthiest person in three to five years? I think he can. Here’s why.
Nvidia Really Has to Grow for a Real Shot
Elon Musk is the world’s wealthiest person at $213 billion. His wealth is down $16 billion in 2024.
Business Insider recently reported the Delaware judge’s ruling invalidating the Tesla (NASDAQ:TSLA) CEO’s 2018 pay package worth $55 billion. If you subtract this amount from his net worth, Musk’s net worth drops to $158 billion, moving him down to the 5th spot ahead of Bill Gates and behind Zuckerberg. If it happened today, Huang’s target would drop to $197 billion, and Jeff Bezos.
From what I’ve read about Huang, this would be the last thing on his mind as he continues to build an AI powerhouse, but he does have a taste for nice cars. They don’t come cheap. But I digress.
If Nvidia were the only company in the race, he could become the world’s wealthiest person. Unfortunately, that’s not the case. People like Bernard Arnault are going to keep building their respective businesses. Nvidia will have to go faster than these other wealthy folks.
As of Huang’s Dec. 13, 2023, Form 4 filing with the SEC, the CEO held 86.62 million shares of Nvidia stock. That’s up slightly from the proxy amount of 86.40 million as of Apri 3, 2023. Based on a share price of $791.22, the stock alone is worth $68.54 billion.
Let’s assume that Bezos’ net worth increases 10% annually over the next five years; at the end of 2028, it would be $317.3 billion. For Huang to match or exceed Bezos’ projected net worth, his net worth will have to increase by 36% annually for the next five years.
The question is whether NVDA stock can appreciate 36% a year over the next half-decade.
NVDA Stock Is Up 1920% Over Past 5 Years
While plenty of good things have happened to Nvidia over the past five years, none of the catalysts for Nvidia’s growth come anywhere close to the potential cash flow generation of AI.
I looked at a decade’s worth of Nvidia’s annual cash flow using S&P Global Market Intelligence data, and fiscal 2024 stands out like a sore thumb. Its 2024 cash flow from operating activities was $28.09 billion, 3x the next highest cash flow on record of $9.11 billion in 2022.
Nvidia doesn’t provide guidance beyond the next quarter, so we’ll use analyst estimates.
For fiscal 2025, analysts expect revenue of $107.25 billion, 76% higher than 2024. In 2026, they expect $131.19 billion, 22% higher than 2025. On the bottom line, that translates into $24.08 a share in 2024 and $29.52 in 2026.
Nvidia is currently valued at 39x its forward earnings. If that multiple holds over the next two years, we’re looking at a share price of $1,151. Based on 86.62 million shares, Huang’s Nvidia stake would be worth $99.7 billion.
Assuming annual EPS growth of 15% between fiscal 2027 and 2029, Nvidia’s EPS would be $44.90 in 2029. If we take the exact multiple (39x), its share price would be $1,751, putting Huang’s share value at $151.7 billion, about half of Bezos’ projected net worth.
The Bottom Line
Based on a share price of $1,751 at the end of 2028, the compound annual growth rate over the next five years is only 17.2%, significantly less than that over the past five years.
Something’s got to give.
Whether it be multiple expansion, higher EPS, or another secular trend beyond AI, all of these things have to come into play for Nvidia stock to get to $3,663, the share price required to get Huang to $317.3 billion [$317.3 billion divided by 86.62 million shares].
A compound annual growth rate of 36% is possible. Whether it’s probable is another story altogether.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.