"NVIDIA Corporation(NVDA.US) "Cash Empire" emerges: Huang Renxun builds AI ecosystem firewall, future will use strategic investments to replace large mergers and acquisitions."

Notice that this week, NVIDIA Corporation (NVDA.US) announced an investment of $2 billion in chip design company Synopsys, which is the latest in a series of large-scale investments announced by the chip manufacturer this year. NVIDIA Corporation also announced investments of $1 billion in Nokia Oyj Sponsored ADR, $5 billion in Intel Corporation, and $10 billion in Anthropic - these four transactions alone promise a total investment of $18 billion, not including smaller venture capital investments. This doesn't even include the largest commitment: investing $100 billion in purchasing shares of OpenAI in the coming years. However, NVIDIA Corporation's CFO Colette Kress stated on Tuesday at the UBS Group AG Global Technology and AI Conference that a final agreement has not yet been reached. Despite involving huge amounts of money and numerous transactions, NVIDIA Corporation has enough cash reserves to write large checks. As of the end of October, NVIDIA Corporation had $60.6 billion in cash and short-term investments. This number has increased significantly from $13.3 billion in January 2023, shortly after the release of ChatGPT by OpenAI three years ago, a key factor that drove NVIDIA Corporation's chips to become the most valuable technology product. As NVIDIA Corporation transitions from a gaming technology manufacturer to the highest-valued company in the United States, its balance sheet is as solid as ever, and investors are increasingly curious about how the company will use its massive cash reserves. During last month's earnings call, when asked about the company's plans for cash, CEO Jensen Huang said, "No company has ever achieved the kind of growth we're talking about." According to FactSet analysts, the company is expected to generate $96.85 billion in free cash flow this year, with a total of $576 billion in free cash flow over the next three years. Some analysts hope to see NVIDIA Corporation use more cash for stock buybacks. Melius Research analyst Ben Reitz wrote in a report on Monday, "NVIDIA Corporation is expected to generate over $600 billion in free cash flow over the next few years, which should provide ample room for opportunistic stock buybacks." The company's board of directors authorized an additional $60 billion in stock buybacks in August. In the first three quarters of this year, the company has already spent $37 billion on stock buybacks and dividends. Huang explicitly stated, "We will continue with buybacks." But NVIDIA Corporation's capital operations do not stop there. Huang pointed out that the strong balance sheet gives customers and suppliers confidence in fulfilling future orders. He explained, "Our reputation and credibility are incredible. It takes a very strong balance sheet to support this level of growth, growth rate, and corresponding scale." CFO Kress stated on Tuesday that the company's "top priority" is to ensure they have enough cash to deliver the next generation of products on time. Most of NVIDIA Corporation's major suppliers are equipment manufacturers such as Foxconn and Dell Technologies, Inc. Class C, who may require NVIDIA Corporation to provide working capital to manage inventory and expand manufacturing capacity. Huang referred to the company's strategic investments as "very important work," noting that if companies like OpenAI grow, it will drive additional consumption of artificial intelligence and NVIDIA Corporation's chips. NVIDIA Corporation stated that they do not require invested companies to use their products, but in fact, all invested companies are using them. NVIDIA Corporation's cash flow has increased significantly since 2020. When discussing the company's AI software, Huang stated, "All of our investments so far - all of them, without exception - are related to expanding the influence and ecosystem of Cuda." According to October filings, NVIDIA Corporation has invested $8.2 billion in private enterprises. For NVIDIA Corporation, these investments have replaced mergers and acquisitions. The $7 billion acquisition of Mellanox in 2020 was the company's largest acquisition to date, laying the groundwork for the AI server rack product, valued at around $300 million currently (not just a single chip). However, the company encountered regulatory obstacles when it attempted to acquire chip technology company Arm for $40 billion in 2020. After US and UK regulators expressed concerns about its potential impact on competition in the chip industry, NVIDIA Corporation voluntarily terminated the acquisition before it was completed. Although they have acquired some small companies in recent years to strengthen their engineering teams, no deals of several billion dollars have been completed since the failure of the Arm transaction. Kress acknowledged at an investor conference this week, "It's difficult to consider very significant large acquisitions. I wish there were such opportunities, but they won't be easy to achieve."