Nvidia: Latest AI Partnership May Add to Concerns, but We Think Chip Demand Is There

Key Morningstar Metrics for Nvidia

• Fair Value Estimate
  : USD 280.00
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Very High

On Aug. 10, Nvidia NVDA announced strategic partnerships with six large financial institutions to “establish AI compute infrastructure financing platforms … to mobilize over USD 500 billion of third-party capital” for use in artificial intelligence buildouts.

Why it matters: In our view, Nvidia is leveraging its position at the center of the AI ecosystem by gathering a host of financial partners—Apollo APO, BlackRock BLK, Blackstone BX, Brookfield BAM, Goldman Sachs GS, and KKR KKR—to invest long-term capital in AI infrastructure buildouts.

• Unlike with its other AI deals, Nvidia won’t be supplying cash into the platform. The company may provide support for the residual value of the assets in certain cases.

The bottom line: We maintain our USD 280 fair value estimate for wide-moat Nvidia and continue to view the shares as undervalued, with the firm’s medium-term and long-term growth prospects underrated by the market. The financial partnerships do not sway our high expectations for Nvidia’s growth.

• We generally like Nvidia’s larger strategy of expanding the AI ecosystem and using its technological and financial strength to enable a fast-growing AI landscape for both established firms and newcomers. Nvidia is undoubtedly all in on AI, for better or worse.

Bears say: We recognize that investors could be uncomfortable with the rising complexity of AI deals. Concerns have surfaced around private credit, vendor financing, and circular deals, the last two of which were troublesome during the dot-com boom and bust.

• CEO Jensen Huang aimed to alleviate these concerns in an X.com post, and the lack of direct investment alleviates some of our concerns around the partnerships.
• We think investors should examine these risks, but we don’t think the bearish outcomes are imminent. We still see healthy AI demand with exponential token generation, high GPU rental prices as AI vendors are compute-constrained, and rapid expansion from non-Nvidia AI suppliers.