Nvidia’s Mushrooming Cash Pile Spotlights Spending Choices
The Takeaway
Nvidia’s free cash flow is expected to hit $96.5 billion this fiscal year.
- Analysts project Nvidia will generate $850 billion in cash in the four years through January 2030.
- Nvidia is spending the money by investing in AI and cloud firms and buying back shares
All of the big tech companies have long been cash geysers. But the rate at which Nvidia’s cash production has exploded in the past couple of years is on a whole different level than other companies have experienced. And that’s raising questions about how Nvidia will spend its fast-expanding cash pile.
Nvidia’s free cash flow has mushroomed from $3.8 billion in the year to January 2023 to an estimated $96.5 billion in the year ending this coming January, a period when its sale of specialized chips for AI took off. That revenue growth represents a compound annual growth rate of 194%. A scan of the biggest tech firms’ financial history going back to 1990 suggests that’s a faster rate of growth than any experienced during any three-year period in that time. The only period that comes close is Apple’s takeoff in the years immediately after it introduced the iPod in 2001. (See chart above).
And with Nvidia’s AI chip sales continuing to grow—revenue rose 62% in the October quarter, the company reported last week—its cash production is likely to keep expanding rapidly. In the four years through January 2030, analysts estimate Nvidia will generate a total of about $850 billion in cash, after deducting capital expenditures, data from S&P Global Market Intelligence shows.
That’s a long period, and much could change. Still, even if Nvidia brought in half that amount, it would represent an enormous improvement on the total of $21 billion the company generated in the four years from fiscal 2020 through fiscal 2023.
The projected total through January 2030 is also significantly more than the free cash flow analysts expect to come from Google, Meta, Amazon and Microsoft in the same period. All four of those companies are ramping up their capital expenditures for AI, depressing their free cash flow. They’re all big customers of Nvidia, so we’re seeing a big shift of wealth from them to the chipmaker.
The total is also greater than what analysts expect Apple to produce. Apple isn’t investing in AI at anywhere near the same level as the other companies and generally has relatively low capital expenditures.
Being suddenly awash in cash has put the spotlight on what Nvidia is doing with the money. It has unveiled a series of investments in companies that use Nvidia chips—including plans to put $10 billion into Anthropic and $100 billion into OpenAI—sparking questions about whether Nvidia is trying to increase demand.
It has also invested in newer cloud firms, such as CoreWeave, which also buy Nvidia chips. Nvidia has gone further in some cases. It said this week it had guaranteed a data center lease for an unidentified cloud company in exchange for stock warrants. The guarantee could make the lease appear less risky for lenders and lower the data center’s financing costs.
When CEO Jensen Huang was asked about these investments and his spending plans generally on the company’s earnings call this past week, he said Nvidia partly would “continue to do stock buybacks.” Spending on buybacks has already increased to $36 billion in the first three quarters of Nvidia’s current fiscal year, from $10 billion in fiscal 2023.
But Huang mostly answered the question by talking about “using cash to fund our growth,” adding that investments the company has made in companies such as OpenAI were about expanding “our ecosystem.”
Huang’s comments suggest Nvidia is taking a different approach to growth from that pursued by other big tech companies, such as Meta and Google, which used their cash to diversify into other businesses. Meta, for instance, has poured tens of billions into augmented and virtual reality and lately AI. Google invested in an array of different bets, such as self-driving cars.
Nvidia hasn’t yet completed the high-profile investments. OpenAI and Nvidia are still negotiating final terms, for instance. As a result, cash on Nvidia’s balance sheet has continued to grow steadily, from around $13 billion at the start of 2023 to $60 billion at the end of October (see chart).