Nvidia has significantly ramped up its role as an AI investor, committing over $40 billion in equity bets this year to bolster its vast AI infrastructure ecosystem. This strategic spree includes major investments in companies like Corning and IREN, alongside foundational AI developers like OpenAI, ensuring its chips remain central to the burgeoning AI industry. While analysts acknowledge the creation of a “competitive moat,” some express concerns about the “circular investment theme” potentially inflating demand and creating market durability risks.
Nvidia has dramatically intensified its role as an investor in the artificial intelligence sector, committing over $40 billion in equity bets this year alone. This aggressive strategy sees the chipmaker not only investing in companies across the entire AI infrastructure stack but also securing commercial deals that often lead back to purchases of Nvidia's own technology. This approach has proven highly lucrative, with a previous $5 billion investment in Intel soaring to over $25 billion in months.
This week alone underscored Nvidia's accelerating pace. The company reached an agreement with data center operator IREN, granting it the right to invest up to $2.1 billion. Just a day prior, Nvidia sealed a deal with 175-year-old glass manufacturer Corning, with the option to invest up to $3.2 billion. News of these partnerships sent shares of both IREN and Corning soaring.
As the undisputed leader of the AI boom, Nvidia's graphics processing units (GPUs) are indispensable for training AI models and handling massive workloads. This global demand has propelled Nvidia's stock more than elevenfold in four years, making it the world's most valuable company with a market capitalization of approximately $5.2 trillion.
To cement its dominance beyond just chips, Nvidia is actively financing the entire AI supply chain. This ensures that the ecosystem runs on Nvidia hardware and has ample capacity to meet surging demand. However, this strategy has raised concerns among some AI observers, who draw parallels to vendor financing practices that contributed to the dot-com bubble, questioning if Nvidia's investments, much like those of cloud giants Google and Amazon, are primarily designed to fuel its own growth.
With an impressive $97 billion in free cash flow last fiscal year, Nvidia is now backing many of the same companies that purchase its chips, and in some instances, even leasing compute capacity back to them. Matthew Bryson, an analyst at Wedbush Securities, noted that Nvidia's deal-making fits "squarely into the circular investment theme" that has fueled market durability fears. Yet, Bryson also suggests that these investments could establish a "competitive moat" if executed effectively.
Nvidia has signed at least seven multibillion-dollar investments with publicly traded companies this year, alongside participating in approximately two dozen investment rounds for private companies, including several early-stage ventures, according to FactSet.
'We don't pick winners'
Among its most significant ventures, Nvidia made a $30 billion investment in OpenAI, the creator of ChatGPT and a long-standing partner. The company also contributed to major funding rounds for Anthropic and Elon Musk's xAI, which later merged with SpaceX.
"There are so many great, amazing foundation model companies, and we try to invest in all of them," Nvidia CEO Jensen Huang stated in an April podcast. "We don't pick winners. We need to support everyone."
Shareholders eagerly await Nvidia's fiscal first-quarter earnings report, due in less than two weeks, for a clearer understanding of its expanding portfolio and its financial implications. In the last fiscal year, Nvidia invested $17.5 billion in private companies and infrastructure funds, primarily to support early-stage startups, including AI model companies that are direct or indirect purchasers of its products, as detailed in its annual SEC filing.
Nvidia's balance sheet showed non-marketable equity securities (private company investments) surging from $3.39 billion to $22.25 billion by the end of January. The company also reported gains of $8.92 billion from these assets and publicly held equities, a significant increase from $1.03 billion in the prior fiscal year, partly driven by its highly successful investment in Intel, which saw its stock climb over 200% this year.
During a February earnings call, Huang reiterated, "Our investments are focused very squarely, strategically on expanding and deepening our ecosystem reach."
The recent IREN deal includes a provision for the data center company to deploy up to 5 gigawatts of Nvidia's DSX-branded infrastructure designs, specifically for AI workloads across its global facilities. Concurrently, the Corning agreement involves the construction of three new U.S. facilities dedicated to optical technologies, anticipating Nvidia's shift towards fiber-optic cables over copper for its rack-scale systems.
In March, Nvidia poured $2 billion into Marvell Technology as part of a strategic partnership focused on silicon photonics. That same month, it invested an equivalent amount into Lumentum and Coherent, both companies developing photonics technologies.
Nvidia's investment spree also extends to so-called "neoclouds." January saw a $2 billion investment in CoreWeave for building out data centers powered by Nvidia technology. Another $2 billion went to Nebius Group, an AI cloud company, under an agreement for AI infrastructure deployment, fleet management, inference, and AI factory design.
Chip analyst Jordan Klein at Mizuho praised the deals with component makers as "super smart" and an "excellent use of cash" for accelerating the development of critical, in-demand technologies. However, he expressed more skepticism about the neocloud investments, finding them "more questionable" and suggesting they "smell like you are pre-funding the purchase of your own GPUs and products." Nevertheless, Klein acknowledged that these cloud providers offer essential attributes like power and data center capacity that Nvidia requires.
Ben Bajarin of Creative Strategies echoed this sentiment regarding IREN, warning CNBC that "The risk is that if the cycle turns, the market starts questioning how much of the demand was organic versus supported by Nvidia's own balance sheet."
While Nvidia has significantly invested in publicly traded partners, these sums are dwarfed by its $30 billion commitment to OpenAI. This substantial funding in late February came over a decade after their initial collaboration, deepening their ties significantly since ChatGPT's launch in 2022 ignited the generative AI frenzy.
The investment in OpenAI was initially envisioned to be much larger, with a reported plan in September for Nvidia to inject up to $100 billion over time as OpenAI deployed 10 gigawatts of Nvidia systems. However, that deal never materialized as OpenAI shifted its focus from developing its own data centers to relying heavily on partners like Oracle, Microsoft, and Amazon for compute capacity.
Jensen Huang indicated in March that investing $100 billion in OpenAI was likely "not in the cards," suggesting the $30 billion deal "might be the last time" Nvidia writes a check before a potential OpenAI IPO later this year.
