Finance
Surprise! Nvidia has a secret business outside of chips, and is already generating billions of dollars.
There is no hotter stock in the world than that Nvidia (NASDAQ: NVDA) straight away. The company’s H100, A100 and new Blackwell semiconductor chips are widely regarded as superior to the competition. Given Nvidia’s impressive lineup of graphics processing units (GPU), the company is undoubtedly relishing the moment when generative AI applications take off.
While this is encouraging, investors may be surprised to learn that Nvidia offers many more services beyond GPU chips and data center services. Let’s dive into one of Nvidia’s secretive, under-the-radar businesses and assess why this particular operation may be the most important of them all.
Looking beyond chips and data centers
Nvidia reports its revenue in two categories: computing and networking, and graphics. When Nvidia was founded in the early 1990s, the company’s original mission was to improve graphics processing capabilities for video games.
While gaming is still a crucial part of Nvidia, the company’s largest businesses now fall under compute and networking. Admittedly, computers and networking – and gaming – are fairly general terminologies. What do they actually mean?
According to Nvidia’s filings, the computing and networking segment mainly consists of the company’s data center, robotics and artificial intelligence (AI) businesses, while the graphics business is responsible for Nvidia’s GPU business.
During the first quarter of fiscal 2025 (ended April 30), compute and networking generated $22.7 billion in revenue – up 408% year over year. One of the subtle catalysts in the computing and networking industry is Nvidia’s compute unified device architecture (CUDA) platform. CUDA is a program that allows developers to write software applications that work in parallel with Nvidia’s GPUs.
While this may not seem like much at first glance, the CUDA infrastructure is incredibly important to Nvidia. Let’s find out why.
Why is CUDA important to Nvidia?
Currently, industry analysts estimate that Nvidia holds a staggering 80% market share in AI-powered chips. A major use case for AI chips relates to training and inferring AI models. These applications are especially needed to build large language models (LLMs) such as ChatGPT, Anthropic, Claude, Gemini and more.
CUDA is so lucrative for Nvidia because it offers the company an additional service that can sit on top of its leading GPU hardware products. This is a key differentiator for Nvidia, as it allows the company to sell both hardware and software services related to AI development.
Additionally, as competition within the chip world continues to increase, CUDA offers Nvidia some flexibility beyond semiconductors. Furthermore, given that software often has much higher margins than hardware, I’m optimistic that Nvidia’s gross profit and cash flow profiles won’t take much (if any) of a material hit if the company starts to lose some of its market share . the chip room.
Are Nvidia Stocks a Buy Now?
Nvidia shares are up 156% so far in 2024. Not only does this conveniently overshadow the generous returns of the S&P500 And Nasdaq Compositebut Nvidia briefly became the largest company in the world by market capitalization this week.
NVDA PE ratio data Ygraphs
While this might imply that Nvidia stock has become pricey, a look at the chart above might suggest otherwise. The company’s current price-to-earnings (P/E) ratio, around 74, is actually significantly lower than a year ago.
This dynamic suggests that even though Nvidia shares have soared, the company’s profits have risen at a faster pace. Technically, this means that Nvidia shares are now cheaper than they were last year on a price-to-earnings basis.
I see Nvidia as a long-term call option in the AI landscape. Given that the company has a leading edge in chips, combined with its CUDA software business, I think Nvidia has a bright future in the coming years when it comes to the continued proliferation of AI development.
While Nvidia stock is currently experiencing some momentum, long-term investors may still want to consider adding to an existing position or starting to build one.
Should You Invest $1,000 in Nvidia Now?
Consider the following before buying shares in Nvidia:
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Adam Spatacco has positions at Microsoft and Nvidia. The Motley Fool holds positions in and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has one disclosure policy.
Surprise! Nvidia has a secret business outside of chips, and is already generating billions of dollars. was originally published by The Motley Fool
