Nvidia goes on spending spree as AI boom builds cash reserves to $60 billion

Nvidia dropped $2 billion on Synopsys this week. It’s just the latest in a string of big-money moves the chipmaker has made recently.

The company’s been busy writing checks. There’s $1 billion going to Nokia, $5 billion to Intel, and $10 billion to Anthropic. Add it all up and that’s $18 billion in commitments from just these four deals. And that’s not even counting the smaller VC investments they’ve made.

Then there’s the big one. Nvidia wants to buy $100 billion in OpenAI shares over several years. But Colette Kress, the finance chief, said Tuesday there’s still no final agreement on that.

Nvidia’s got the money to back all this up. By the end of October, it had $60.6 billion in cash and short-term investments sitting around. Compare that to $13.3 billion in January 2023, right after ChatGPT came out. That launch three years back turned Nvidia’s chips into the hottest tech product around.

The company went from making gaming tech to becoming America’s most valuable company. Now investors want to know what they’re going to do with all that cash.

CEO Jensen Huang talked about it during last month’s earnings call. “No company has grown at the scale that we’re talking about,” he said when someone asked about the cash pile.

As per CNBC, analysts at FactSet think the company will generate $96.85 billion in free cash flow this year. Over the next three years? They’re looking at $576 billion.

The board added $60 billion to the buyback program in August. In the first nine months of this year, they spent $37 billion on buybacks and dividends.

Strong balance sheet benefits business

Huang says they’ll keep doing buybacks, but there’s more to it than that.

Having a big balance sheet gives customers and suppliers confidence, he explained. “Our reputation and our credibility is incredible,” Huang said. “It takes a really strong balance sheet to do that, to support the level of growth and the rate of growth and the magnitude associated with that.”

Kress said Tuesday the company’s main focus is making sure it has enough cash to deliver new products on time. Big suppliers like Foxconn and Dell sometimes need Nvidia to provide working capital so they can manage inventory and build out more manufacturing capacity.

Huang calls the investments “really important work.” When companies like OpenAI grow, he says, it drives more AI consumption and more demand for Nvidia’s chips. The company doesn’t require investment partners to use its products, but they all do anyway.

“All of the investments that we’ve done so far, all of it, period, is associated with expanding the reach of Cuda, expanding the ecosystem,” Huang said, talking about the company’s AI software.

An October filing showed Nvidia has already put $8.2 billion into private companies. These investments have basically replaced acquisitions for them.

Acquisition strategy shift after failed Arm deal

Nvidia’s biggest acquisition ever was Mellanox for $7 billion in 2020. That deal set the stage for its current AI products, which aren’t just single chips but entire server racks that go for around $3 million.

But it ran into trouble trying to buy Arm for $40 billion in 2020. Regulators in the U.S. and UK weren’t having it. They worried about what it would do to competition in the chip industry. Nvidia walked away before the deal closed. It has picked up some smaller companies since then to boost its engineering teams, but nothing big since Arm fell apart.

Kress talked about it at an investor conference this week. “It’s hard to think about very significant, large types of M&A,” she said. “I wish one would come available, but it’s not going to be very easy to do so.”