Portfolio Manager Richard Clode discusses NVIDIA’s latest earnings report, which reinforces its position at the centre of the AI value chain. The key debate now is whether this marks a turning point towards a more sustained valuation re-rating.
While the market continues to be apathetic to NVIDIA’s ongoing strong quarterly earnings results, it is hard to ignore the generational free cashflow transfer from AI datacentre builders to suppliers. This is because it is enabling NVIDIA to announce one of the largest shareholder return programmes in history – with parallels to Apple’s announcement in 2012 when the market was debating the sustainability of iPhone growth, and whether Apple would be the ‘next Nokia’, which led to a valuation discount by the market at the time. Signalling conviction in more durable growth and margins, Apple was able to convince the market that it was a platform company with a durable competitive moat, which ultimately led to a valuation premium. NVIDIA hopes to embark on a similar journey; it has the balance sheet and research and development (R&D) scale to be at the forefront of recent innovation in CPUs and LPUs (Language Processing Units), while retaining a front‑of‑queue advantage in an extreme supply‑constrained semiconductor landscape.
