NVIDIA is one of the leading semiconductor firms with a dominant position in the design and development of graphics processing units (GPUs). From its origins in supplying GPUs for the gaming market, where it has an 80% market share, it has adapted its products to capitalize on the demand for accelerated computing and generative Artificial Intelligence (AI) applications. NVIDIA is now the leading developer of such AI-driven infrastructure solutions used by enterprise customers including Tesla, Meta, and Amazon. By segment, Data Center customers account for almost three-quarters of revenue followed by Gaming (one-fifth), Professional Visualization (3%), Automotive (2%) and Original Equipment Manufacturers (1%). The company operates a fabless model with manufacturing outsourced to third parties, notably Taiwan Semi Manufacturing Company (TSMC).
During the earnings call, management noted gaming had doubled from pre-Covid levels despite the lackluster PC market performance. NVDA continues to deliver, quarter after quarter, an impressive top-line growth outpacing higher expenses. The group is expected to continue to benefit from continued AI-driven demand, though further immediate upside is somehow limited by a focus on shareholder returns. The announced USD 25bn buyback program is share-price supportive but indicates at the same time that the company cannot identify any immediate organic or market expansion.
NVDA’s competitors are well-capitalized semiconductor firms – some of whom are also customers – including Microsoft, Amazon and Alphabet, as they invest in their own AI solutions.
NVIDIA bonds trade at a premium to similarly rated peers. This occurs on the back of a positive growth outlook and the lack of issuance NVDA credit is somehow illiquid and are opportune for buy-and-hold investors.