Nvidia is facing its biggest challenge yet: The law of large numbers

The numbers Nvidia must hit to make you money are daunting

Shawn Tully is a senior editor-at-large at Fortune, covering the biggest trends in business, aviation, politics, and leadership.

Nvidia’s Q2 release on Aug. 27 marked

If you’re a Nvidia investor, or pondering buying its shares now, it’s important to recognize that the threat to getting anything resembling big returns isn’t that heavy dependence on a few big customers, or Chinese rivals playing catch-up, but the law of large numbers. Put simply, Nvidia’s profits and market cap are already so gigantic that to reward shareholders, it would need to swell to a size dwarfing where any tech giant stands today, and add earnings at a rate, measured in billions of dollars, that no other major, established enterprise has ever achieved.

Let’s assume the minimum return you’d want from Nvidia’s stock is 10% annually. Keep in mind that you’d be betting on a player that will only pay off if it waxes extremely fast from an already elevated P/E and market cap, and so you’re taking a big risk that will happen—hence, even 10% looks like a pretty unspectacular win. Right now, Nvidia famously boasts the largest valuation

Hence, to deliver that 10% annual return, Nvidia would need to double its market cap

If inflation averages 2.5% for the next seven years, that $293 billion equates to $246 billion in today’s dollars. That’s 112% more than the $116 billion that Alphabet, the S&P 500’s top earner, posted over the past four quarters, and almost 150% above what Microsoft registered for its 2025 fiscal year ended in June. Ringing the bell mandates an average yearly addition to profits of $26 billion. In the past three fiscal years, Microsoft and Alphabet have shown blowout profit expansion, but not on that scale; both lifted the bottom line

The problem: Nvidia’s stock can only pay off if a number of heroic projections that CEO Jensen Huang is making actually happen. Huang is forecasting that spending on AI infrastructure

A warning sign is that Nvidia’s year-over-year quarterly growth, though still huge, is already falling. Certain laws of gravity always apply when it comes to business strategy, including that if a business is profitable enough, competition will increase. AI infrastructure is so hugely profitable that rivals will flood the market, taking share from Nvidia and eroding its margins. It will need to diversify its customer base substantially from the high concentration on a couple of giant customers to keep racing ahead, and competitors will be vying for the same big clients.

Companies, even great ones, don’t keep near-monopoly positions for long. That’s just not the way markets work. The best bet is that Nvidia remains a great, fast-growing, and highly profitable enterprise. That’s a hugely impressive feat. But it’s not nearly enough to beat the law of large numbers.