Nvidia has a cash problem — too much of it

When Nvidia This week it announced it would buy a $2 billion stake in chip design company Synopsys; This was just the latest in a series of massive investments the chipmaker announced this year.

Nvidia also said it would buy a $1 billion stake in Nokia and invest $5 billion in Nokia. Intel and $10 billion in Anthropic — $18 billion in investment commitments from those four deals, not counting smaller venture capital investments.

Nvidia’s finance chief Colette Kress said Tuesday that that doesn’t include even the biggest commitment: $100 billion to buy shares of OpenAI over a few years, but there’s still no definitive agreement.

It’s a lot of money and a lot of deals, but Nvidia has the money to write big checks.

As of the end of October, Nvidia’s cash and short-term investments were $60.6 billion. This was up from $13.3 billion in January 2023, just after OpenAI launched ChatGPT. That launch three years ago was key to making Nvidia’s chips the most valuable tech product.

As Nvidia transforms from a gaming tech maker into the most valuable company in the United States, its balance sheet has become a fortress, and investors are increasingly wondering what the company will do with its money.

“No company has grown at the scale we’re talking about,” CEO Jensen Huang said on Nvidia’s earnings call last month when asked what the chip maker plans to do with all its money.

Analysts surveyed by FactSet expect the company to generate $96.85 billion in free cash flow this year alone and $576 billion in the next three years.

Some analysts would like to see Nvidia spend more of its money on share buybacks.

“Nvidia will generate over $600 billion in free cash flow over the next few years and will have plenty left over for opportunistic buybacks,” Melius Research analyst Ben Reitzes wrote in a note on Monday.

The company’s board of directors increased its share repurchase authority in August, adding $60 billion to its total. It spent $37 billion on share buybacks and dividends in the first three quarters of the year.

“We will continue to do stock buybacks,” Huang said.

Nvidia is doing buybacks, but it doesn’t stop there.

Huang said Nvidia’s balance sheet strength gives its customers and suppliers confidence that orders, which he calls sales, will be filled in the future.

“Our reputation and credibility are incredible,” Huang said. “Doing that requires a really strong balance sheet to support the level of growth, the rate of growth and the size associated with that.”

On Tuesday, Nvidia’s CFO Kress said the company’s “biggest focus” is ensuring it has enough cash to deliver its next-generation products on time. Many of Nvidia’s largest suppliers are equipment manufacturers such as Foxconn and Dell, which may require Nvidia to provide working capital to manage inventory and build additional manufacturing capacity.

Huang called his company’s strategic investments “really important work” and said that if companies like OpenAI grow, it will lead to greater consumption of artificial intelligence and Nvidia chips. Nvidia says it doesn’t require any investment to use its products, but then again, they all do.

“All the investments we’ve made so far — they’re all related to expanding Cuda’s reach and expanding the ecosystem,” Huang said, referring to the company’s artificial intelligence software.

In a filing in October, Nvidia said it had already invested $8.2 billion in private companies. For Nvidia, these investments have replaced acquisitions.

Nvidia’s $7 billion acquisition of Mellanox in 2020 was the company’s largest acquisition ever and laid the groundwork for its current AI products, which are not single chips but entire server racks that sell for around $3 million.

But the company ran into regulatory problems when it tried to acquire the chip technology firm Arm $40 billion in 2020.

Nvidia canceled the deal before it was completed after regulators in the US and UK raised concerns about the impact the deal would have on competition in the chip industry. Nvidia has acquired some smaller companies in recent years to bolster engineering teams but has not completed a multibillion-dollar acquisition since the Arm deal fell through.

“It’s hard to think about very significant, large types of mergers and acquisitions,” Kress said at an investor conference this week. “I wish someone was available, but it won’t be easy to do.”

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