James Anderson, former Scottish Mortgage (SMT ) fund manager, has estimated that chipmaker Nvidia (NVDA.O) could be worth almost $50tn (£38.5tn) in a decade, more than the current total worth of the S&P 500 US stock market index.

Anderson, who according to the Financial Times holds Nvidia as the top position in the $650m growth fund he now runs at Lingotto Investment Management, told investors: ‘The potential scale of Nvidia in the most optimistic outcome is both way higher than I’ve ever seen before and could lead to a market cap [capitalisation] of double-digit trillions. This isn’t a prediction but a possibility if artificial intelligence [AI] works for customers and Nvidia’s lead is intact.’

His excitement at Nvidia’s potential is significant for investors in the £12bn FTSE 100-listed Scottish Mortgage, which under Anderson and co-manager Tom Slater invested in Nvidia in 2016. It is mounting a strong recovery after an extremely turbulent four years since the 2020 Covid pandemic saw its market value veer between £20bn and £10bn.

Nvidia, a Citywire AAA-rated Elite company held by 13 leading fund managers, has been the biggest beneficiary of soaring demand for chips that can train and run generative language-learning AI models such as OpenAI’s ChatGPT. After a 194% share price surge in the past 12 months, the company is worth nearly $3.2tn and ranks third in the S&P 500 behind $3.3tn Microsoft and $3.5tn Apple.

It accounted for 9.4% of Scottish Mortgage’s £14bn of gross assets on 30 June.

Not holding Nvidia or being underweight the super-stock has been one of the main factors for actively managed funds to underperform either the US stock market or popular global benchmarks such as the MSCI World index.

Some investors have expressed scepticism over whether Nvidia can maintain what Allianz Global Investors Julian Bishop called its ‘insane’ margins.

In a recent Citywire video, Brunner (BUT ) investment trust fund manager Bishop argued that tech giants had handed Nvidia $8bn of profits last year which he believed incentivised them to develop cheaper alternatives. He was also cautious because ‘no one’s actually making money’ from AI.

Anderson (pictured above), who left Baille Gifford as a senior partner two years ago, said in a letter to investors that real growth in data centre AI chip demand appeared to be running at about 60% a year. If that and its current margins were maintained for 10 years it would generate earnings per share of $1,350 and free cash flow of about $1,000 a share.

Assuming a 5% free cash flow yield, that would lift Nvidia’s share price from $129.28 today to $20,000, valuing it at $49tn.

Anderson put the probability of this happening at 10-15%.

He said the shares would be volatile and would not be surprised if they suffered falls of 35%-40% along the way. ‘That’s what happens and I hope we’d buy more in that event,’ he said.

Lingotto was founded last year by Exor, the holding company of the Agnelli family, an Italian industrial dynasty. Former UK chancellor George Osborne is its chair.