Nvidia Investment Thesis

Published on 04/28/21 | Saurav Sen | 4,504 Words

The BuyGist:

  • This thesis was originally posted on November 6th, 2018. 
  • We go through the company's competitive advantage, durability of competitive advantage, and its management quality. 
  • Since we wrote this, a lot has changed. We regularly revisit our thesis to see what we got right and what we got wrong.

Thesis Summary

Dominant GPU company that's front-and-center in the AI revolution. Main threats are AMD and FPGAs but should carve out a space in markets beyond Gaming and data-centers like Autonomous Vehicles and Virtual Reality.

Competitive Advantage: The Castle

  • Core Competency? Graphics Processing Units (GPUs) for Gaming and AI Computing.
  • Products: Better or Cheaper? Better. Improving GPU’s and making them more AI-friendly.
  • Evidence: Growth? Revenue growing at 40%-plus. EBITDA margins expanding.

Durability of Competitive Advantage: The Moat

  • Competition/Threats? AMD for GPUs. Xilinx/Intel for FPGAs. And ASICs.
  • Protection? Complexity, IP rights, and CUDA – Nvidia’s software stack for GPUs.
  • Cash Flow Resiliency? Resilient. Common Architecture and CUDA extend product cycle.

Management Quality: The Generals

  • Strategy & Action? Positive. Founder Huang focused on the right end-markets.
  • Financial Productivity? High. ROE > 50%, due to high margins.
  • Sustainable Free Cash Flow? ***Redacted
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