This week, Nvidia announced a planned $2 billion investment in chip design firm Synopsys, marking yet another significant investment from the chipmaker this year.
Nvidia has additionally revealed intentions to invest in a $1 billion stake in Nokia, a $5 billion investment in Intel, and $10 billion in Anthropic — totaling $18 billion in investment pledges across these four transactions, excluding smaller venture capital commitments.
This total does not account for the largest commitment of all: a planned $100 billion to acquire shares of OpenAI over several years. However, Nvidia’s finance chief Colette Kress mentioned that there is no definitive agreement in place as of yet, as she stated on Tuesday at the UBS Global Technology and AI conference.
This substantial sum and numerous contracts illustrate that Nvidia is positioned to issue significant payments.
As of late October, Nvidia reported possessing $60.6 billion in cash and short-term investments, up from $13.3 billion in January 2023, right after OpenAI launched ChatGPT. That release three years prior played a crucial role in elevating the value of Nvidia’s chips as leading tech products.
With Nvidia’s evolution from a gaming technology producer to the most valuable company in the U.S., its financial standing has strengthened significantly, prompting investors to become increasingly curious about the company’s future cash utilization.
“No company has expanded at this scale,” CEO Jensen Huang commented when asked about the chipmaker’s cash plans during the earnings call last month.
Analysts surveyed by FactSet predict that the company will generate $96.85 billion in free cash flow this year alone, and $576 billion in the following three years.
Some analysts would prefer to see Nvidia channel more of its resources towards share buybacks.
“Nvidia is projected to generate over $600 billion in free cash flow over the coming years, leaving plenty for opportunistic buybacks,” wrote Melius Research analyst Ben Reitzes in a note this past Monday.
The board of the company increased its share repurchase limit in August, adding an additional $60 billion to its overall total. Throughout the initial three quarters of the year, it utilized $37 billion on share buybacks and dividends.
“We will keep pursuing stock buybacks,” Huang affirmatively stated.
Nvidia is executing these buybacks while simultaneously pursuing other strategies.
Huang noted that Nvidia’s strong financial position assures both customers and suppliers that future orders, which he referred to as offtake, will be fulfilled.
“Our credibility and reputation are exceptional,” Huang stated. “A robust balance sheet is essential to support this level of growth, its pace, and its scale.”
Kress, Nvidia’s CFO, remarked on Tuesday that the main goal for the company is ensuring adequate cash flow to launch its next-generation products punctually. Most of Nvidia’s principal suppliers are equipment makers like Foxconn and Dell, which may necessitate Nvidia to furnish working capital for managing inventory and enhancing manufacturing capabilities.
Huang characterized his company’s strategic investments as “vital work,” emphasizing that the growth of companies like OpenAI boosts demand for AI and Nvidia’s chips. Nvidia has asserted that it does not insist on its investments utilizing its products, yet they consistently do.
“All the investments we’ve undertaken so far — every single one — is focused on broadening the reach of Cuda and enhancing the ecosystem,” Huang articulated, referencing the company’s artificial intelligence software.
In an October filing, Nvidia revealed it had already invested $8.2 billion in private firms. These investments are now serving as alternatives to acquisitions for Nvidia.
The company’s $7 billion acquisition of Mellanox in 2020 stands as the largest ever for the company, forming the foundation for its current AI offerings, which comprise not just single chips but complete server racks valued around an estimated $3 million.
However, the company encountered regulatory challenges when it attempted to acquire chip technology firm Arm for $40 billion in 2020.
Nvidia ultimately canceled the deal prior to completion after regulatory concerns emerged from officials in the U.S. and U.K. regarding its potential effects on competition within the chip market. While Nvidia has acquired several smaller entities recently to enhance its engineering teams, it has not completed any multibillion-dollar acquisitions since the failed Arm endeavor.
“Considering major M&A is quite challenging,” Kress stated this week at an investor conference. “I would hope one would come available, but it won’t be simple.”
