The Era of the Trillion Dollar

On Tuesday, at an event in Taiwan, Nvidia's founder, Jensen Huang, said Marvell, a company that makes semiconductors, could be next to be worth a trillion dollars, making its shares shoot up by 30 percent. It still has to quadruple to hit the prediction. Nvidia itself is valued at over US$ 5 trillion. There are now 14 companies in the trillion-dollar club, mainly from the United States. Last week, a South Korean company, SK Hynix, joined it making, along with Samsung, two from that nation. When SpaceX's IPO, valued at US$ 1.77 trillion, hits the market next week, Elon Musk, its founder, could be the first human being in history to ever be personally worth over a trillion dollars.

A trillion might roll easily off the tongue but the mind is not really made to comprehend its scale. Imagine it in crores. If one crore is 10 million, a billion is 100 crores. A trillion is 100,000 crore. Convert it from dollars to rupees, and it is Rs 96 lakh crores. India's biggest company Reliance is valued around US$ 200 billion. It would have to go up by five times to get to that number. But even then it would need extraordinary growth plus a big bull market where its stock would trade at huge multiples of its annual profits.

A trillion-dollar valuation is however notional because the brick-and-mortar numbers are revenues and profits. Nvidia, for instance, earns around US$160 billion but the market values it at 32 times that because it anticipates profits to explode. Many in the trillion-dollar club are in a similar range with actual earnings, SpaceX did not make profits this year at all. The trillion is a massive expectation of the future. But for that to play out everything must go right but the course of wealth creation in human history shows that to be rarely true. The trillion era is being driven by the promise of artificial intelligence with most companies in the club related to it. But this ebullience won’t last unless AI shows itself able to create the vast profits that the world anticipates.