🤔What is the Market Momentum column about?🤔
I don't know if you're aware of this, but a thorough fundamental in-depth analysis can take 40-50 hours. As an investor, it's impossible to put that much energy into analyzing each company if you want to effectively manage a long enough watch list. That's why I created the Market Momentum column, which provides a snapshot of each stock, currently Nvidia (NVDA), and roughly outlines the current events. It is not an in-depth analysis, but rather just food for thought based on the current state.
My goal is not to give daily trading tips or analyze technical patterns. Instead, I provide quick, to-the-point fundamental mini-analyses that help you filter. These impulses help you keep in mind whether the current price movement of Nvidia (NVDA) or another market participant deserves deeper investigation or is just a passing market phenomenon.
You can find the share subpage with detailed information here: NVDA stock page
If you are looking for in-depth analyses of the site, click on the link below: iO Charts stock analyses
📒Table of Contents📒
I have created a table of contents to make it easier for you to navigate the content:
- 🎢What does Nvidia (NVDA) do?
- 💵Nvidia (NVDA) current status and competitors
- 🤵Nvidia (NVDA) metrics
- ✅Nvidia (NVDA): will you get used to it or will you run away?
- 📝Summary of the thesis
❓What does Nvidia (NVDA) do?❓
Nvidia (NVDA) is now much more than a video card manufacturer. Although they were aimed at PC gamers when they were founded in 1993, they have now become an indispensable cornerstone of artificial intelligence and data centers. The company operates in a so-called "fabless" model: they design the world's most advanced chips, but outsource the manufacturing to external partners.
Nvidia's (NVDA) power lies not only in the hardware itself, but also in its software ecosystem called CUDA. It’s the platform on which developers run their AI models, and it’s what makes it incredibly difficult for competitors to switch. This is what we call a “sticky” business model, which locks users or partner companies into a system that’s very difficult to break out of. Whether it’s self-driving cars, complex simulations, or language models like ChatGPT, there’s an Nvidia microchip humming in the background almost everywhere.
🏆Nvidia (NVDA) Current Status and Competitors
Nvidia (NVDA) currently undisputedly dominates the AI chip market, with a share exceeding 80% according to some estimates. However, this dominance does not mean that they are alone on the field.
It's important to understand that Nvidia (NVDA) is a chip design company. This means that they provide the intellectual product (the chip architecture and software), but they need key partners for the physical implementation. Two other indispensable players in the production chain are:
- ASML (ASML): the Dutch company that manufactures the hundreds of millions of dollars worth of lithography machines that are essential to the production of the most advanced chips. However, Chinese foundries – such as Huawei and SMIC – are already working to catch up with ASML in EUV technology and not be at the mercy of the Dutch, and indirectly the Americans. However, there are still obstacles to this, primarily on the supply chain side, since, for example, ASML receives mirrors from Zeiss and lasers from Trumpf.
- TSMC (TSM): the Taiwanese foundry, which physically manufactures the chips designed by Nvidia with ASML machines. However, it is important to know that Samsung has also previously subcontracted manufacturing for Nvidia, for example the RTX 30 series of video cards. According to the latest news, they will also supply memory chips for the Vera Rubin platform.
This trio (Nvidia-ASML-TSMC) currently forms the backbone of AI hardware. The following diagram illustrates this process:
Of course, we should not miss the chip design software used by chip manufacturing companies, which were created by companies such as Synopsys (SNPS), Cadence Design Systems (CDNS) or Siemens EDA (SIE), and there are a few other similar players on the market.
The biggest threat to Nvidia (NVDA) is the giants developing their own chips. Among the competitors, you should not only watch AMD or Intel, but also the IT mega-corporations. The biggest threat is Microsoft, Google, and Amazon themselves, who are spending incredible amounts of money developing their own AI accelerators, thereby reducing their vulnerability:
- 🌐Google (GOOGL): They have been using their own TPU (Tensor Processing Unit) chips for AI tasks for years, and most recently they introduced their ARM-based CPU called Axion.
- 🛒Amazon (AMZN): The Trainium (for model training) and Inferentia (optimized for inference) chips, as well as their own Graviton processors, are now available in the AWS cloud.
- 💻Microsoft (MSFT): recently debuted the Maia 100 AI accelerator and Cobalt 100 CPU, designed specifically for the Azure cloud and AI workflows.
What the three companies above have in common is that they are all strongly interested in the cloud services segment. They have huge server parks, so they buy a lot of Nvidia (NVDA) products. So it is in their interest to come up with some in-house solution to replace Nvidia's tools, although this has not been successful so far.
🎢Nvidia (NVDA) metrics🎢
In the case of NVDA, the numbers can often seem unrealistic, so it's worth looking deeper to see if growth or pricing is more dominant. I'll cut to the chase: the stock price hasn't completely taken off, let's see why.
📊Price and correction
The price curve has risen sharply in the last two years. If you look at the October 2022 price, the price was only around 11.5 USD, while the stock is currently trading at ~192 USD, while the maximum was around ~207 USD. What is even more shocking is that the stock price has increased by an average of 68.71% in the last 5 years, which is a brutal 16x increase. Tesla (TSLA) had a similar price between 2019 and 2021.
The question is whether the above increase is just AI hype or real revenue growth and value creation.
🪙Valuation: EV/NOPAT vs. price
Many people use P/E, EV/EBITDA, P/FCF ratios to show valuation. After all, the point is whether the price has diverged from the underlying value of the company or not. Personally, I believe more in the ratio of NOPAT yield to price when determining valuation, mainly for accounting reasons. The NOPAT yield (the ratio of after-tax operating profit to enterprise value) in the case of NVDA can often seem low compared to historical averages. This means that the market is pricing in huge future growth.
In this case, however, that's not what happened, but Nvidia (NVDA) has experienced an incredibly brutal growth and has continued to soar, surpassing the price. The most surprising thing is that it doesn't even look expensive, it's somewhere around its fair value, if you believe that the 50-100% growth will continue.
The 2.05% NOPAT yield shown in the graph above is not enough by itself to determine whether the stock is cheap, since you don't know what the historical average was, but I calculated this for you:
- 🎯NOPAT yield currently: 2.05%
- 🕒NOPAT yield 3-year average: 2.00%
- 📊NOPAT yield 5-year average: 2.00%
- 🗓️NOPAT yield 10-year average: 2.00%
- 📜NOPAT yield 20-year average: 6.67%
It is interesting that the averages are around 2% for the 3, 5 and 10 year averages, but this does not seem expensive at the moment. The problem is that trees do not grow to the sky, the question is how long they can. After all, one of the basic rules of the market is that where there is a lot of revenue and high margins, competitors will inevitably appear. But, at the moment, this has not happened yet, which is perfectly illustrated in the next chapter.
🫰Revenues and profitability
The numbers in the image below are shockingly brutal, roughly tied to the rise of AI mania in October 2022. The image below shows that revenue jumped from ~$27 billion to ~$187 billion, but what’s even more outrageous is that most of that was in operating profit. I don’t know if I’ve ever seen a 680% increase in a single year, probably not. Most interestingly, the 147% increase the following year is almost invisible in the images.
The explosive growth in revenue is driven almost entirely by the data center segment, driven primarily by the sale of chips built into server farms used for the rise of artificial intelligence. The profit margins are staggering: the company has pricing power that no one else in the market has right now. I think it's safe to say that Nvidia (NVDA) is the most profitable company in the world right now.
However, this alone does not tell you anything if you do not see the cost structure behind the revenue and profit margin. After all, if the cost increases proportionally to these, then the sum of the two is essentially zero. But that is not the case, the costs are far behind the revenue, which is most evident in Nvidia's (NVDA) generated free cash flow and its NOPAT, or operating profit after taxes. Free cash increased fifteenfold between January 2023 and January 2025, which is an incredibly high growth.
Finally, a last image to emphasize the above: if I plot the capital investment, CAPEX, on a separate graph, the matter does not change in substance: the costs are dwarfed by the income.
🤞Efficiency: ROIC and ROCE
Usually, ROIC and ROCE values are used to express a company's results on its cost of capital, where if ROIC>WACC, i.e. the weighted average cost of capital is lower, then value is created. If you don't know what WACC is, it's worth calculating 10%. There are many different metrics for this, but the two mentioned are the most commonly used, but for the sake of interest, I also included the ROA and ROE values. Let's see how this looks in the case of Nvidia (NVDA):
As you can see, the numbers have exploded regularly after 2023. What is the average? In the case of the S&P500, this value is around 10-12%, and here it is over 100%. I have never seen such brutal numbers, but for those who want to compare this with other companies, I recommend the previous article, which talked about Microsoft (MSFT): Microsoft (MSFT) – The paper is falling, who knows where it will stop?
It is worth noting that Microsoft is one of the best companies in the world, and its ROIC/ROCE values typically range around 25-30%, which is far exceeded by Nvidia (NVDA).
🎲Risk factors: debt, remuneration and share dilution
The issue of Nvidia's (NVDA) debt can be resolved relatively easily:
- 💵cash: 60.61 billion USD
- 👛net debt: -~50 billion USD (debt-cash)
- 🫰net profit: ~99 billion USD
While the numbers above speak for themselves, Nvidia (NVDA) is sitting on a mountain of cash, so its debt could be negative, as it is far outweighed by its cash. This also means that Nvidia could reinvest more of its cash into the business if it wanted to, but it probably doesn't make sense. Are they buying back shares right now? Yes, because there's no better place for that much cash right now, while investors do get a token dividend of less than $1 billion, but I don't think it will be much more than that in the near future.
The image above shows the share repurchase ratio (green), the dividend (purple), and the share-based compensation as a percentage of revenue. What is very important is that with such a large amount of revenue, virtually every number is dwarfed, but what is brutal is the $44 billion in buybacks, which is almost double the revenue in 2022. The company is regularly bathing in cash, which gives it enormous leeway to execute almost any strategy as long as its growth continues.
💵Nvidia (NVDA): will you get used to it or will you run away?💵
As with all companies, there are two narratives when it comes to Nvidia (NVDA). One is supported by optimists and one by pessimists, and I have given a few examples of this.
🐂Bulls say (Optimistic scenario):
- Technological monopoly: Nvidia (NVDA) has over 80% market share in the AI hardware market, and this is unlikely to change anytime soon due to its software (CUDA) monopoly. This trend has been going on in the graphics card market for some time now, with Nvidia (NVDA) beating AMD, and previously ATI, for years.
- New market segments: The era of self-driving cars and humanoid robots is just beginning, and could mean another decade of growth. Interestingly, the number of chips in vehicles has multiplied in the past few years and this trend is unlikely to change, while the robotics industry is essentially just taking its first steps.
- Sovereign AI: More and more countries (e.g. Saudi Arabia, United Arab Emirates) are building their own supercomputers, which creates stable demand at the state level. Many organizations need artificial intelligence disconnected from the Internet for data security reasons, so it is likely that states will multiply this type of infrastructure.
🐻Bears say (Pessimistic scenario):
- Cyclicality: The semiconductor industry (microchip sector) is historically cyclical. If the return on AI investments falls short of expectations, demand could suddenly collapse. It would also be worth examining Nvidia's (NVDA) backlog, a measure of how many orders the company has yet to fulfill.
- Competition and own chips: As I mentioned above, Microsoft, Google, and Amazon's own chips (Maia, TPU, Trainium) may eventually take demand away from Nvidia.
- Geopolitical risk: Since manufacturing is concentrated in Taiwan, any Sino-American tensions could have a devastating impact on the supply chain. With China constantly preparing to occupy Taiwan, this situation is unlikely to be resolved in the short term. TSMC, as the largest manufacturer, has started to relocate its factories abroad, for example in the US to a site called Fab 21, but they also have one in Japan. However, this will only account for 5-8% of total capacity, and in the long term it does not want to relocate more than 20% abroad.
📝Nvidia (NVDA) stock summary📝
Nvidia (NVDA) is currently the most important company in the world in terms of innovation, but it's also the most difficult terrain as an investor. The fundamentals, especially ROIC and profitability, are flawless, but the expectations built into the pricing leave no room for error. Despite this, I have read in several places that Nvidia (NVDA) is around fair value or even slightly undervalued, but this also includes the huge expectations for the future.
Remember, this mini-analysis helps you screen, but it is not a substitute for deeper research. If the price corrects significantly, but the fundamentals (such as data center revenues) are not damaged, this may indicate a good entry point on your watch list. Of course, the reverse is also true: if revenues fall or a serious competitor appears on the market, then you should think about whether Nvidia (NVDA) will maintain its competitive advantage.
And if you want to analyze further, use iO Charts' stock finder and portfolio manager, which you can access here: iO Charts.
🤑If you are interested in what brokers we use, read our articles below:
📉Interactive Brokers broker account analysis – Professional for professionals
📈LightYear Broker Account Analysis - Simplicity and cheapness go hand in hand
FAQ: Professional Questions About Nvidia (NVDA)
1. What is the Blackwell architecture and why is it important?
This is Nvidia's (NVDA) latest generation of chips, which promises multiple performance increases over the previous H100 series. This product line will determine whether the company's growth rate can be sustained in 2026.
2. Why is Nvidia called a “fabless” company?
Because they don't have their own factory (fab). They only create the intellectual product (designs), the physical production is done by TSMC. This allows for high profit margins, but also means dependence on production capacities.
3. What is CUDA and why is it the company's biggest competitive advantage?
CUDA is a programming platform that allows software developers to directly harness the power of Nvidia GPUs. Since almost all AI research for the past 15 years has been done on it, switching to a competitor (e.g. AMD) would involve a huge software rewrite cost.
4. How much dividend does Nvidia (NVDA) pay?
The company pays dividends, but the amount is negligible (yield below 0.1%). Nvidia (NVDA) is not a dividend stock, but a pure growth stock, where profits are spent on development.
5. How does the US export restriction affect the company?
The US is restricting the sale of its most advanced microchip technologies to China. This has caused a significant loss of revenue, but Nvidia (NVDA) has so far been able to more than compensate for this loss in other markets (US, Europe, Middle East).
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