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NVIDIA

The dominant force in AI computing — powering 94% of the data center GPU market with $130.5B in revenue, 75% gross margins, and the CUDA software moat that no competitor has cracked.

Published: 16 Feb 2026 5 min read Sector: Technology (Semiconductors)
Financial Strength
Strong
Moat
Wide Moat
Intrinsic Value
Undervalued
1

Business Overview

What does NVIDIA do, and why is it dominating AI?

NVIDIA designs the brains behind artificial intelligence. Every time ChatGPT answers a question, every time a self-driving car processes its surroundings, every time a drug company simulates molecular interactions — there is a very high chance that NVIDIA hardware is doing the computation. The company has evolved from a graphics card maker for gamers into the most critical infrastructure provider in the AI revolution.

Founded in 1993 by Jensen Huang, Chris Malachowsky, and Curtis Priem, NVIDIA spent decades perfecting GPU (Graphics Processing Unit) architecture. The pivotal insight was that GPUs — originally designed to render video game graphics — are perfectly suited for the parallel processing that AI and machine learning demand. That bet, placed over 20 years ago with the creation of the CUDA software platform, is now paying off spectacularly.

In FY2025 (ended January 2025), NVIDIA generated $130.5 billion in revenue — up 114% year-over-year. Operating income hit $81.45 billion with a 62% operating margin. Free cash flow was $60.85 billion. These are not just good numbers — they are among the best financial results ever posted by any technology company.

NVIDIA's true competitive advantage is not just hardware — it is the CUDA software ecosystem. Over 4 million developers write code optimised for NVIDIA's GPUs. Libraries like cuDNN, TensorRT, and RAPIDS form the backbone of modern AI development. Switching to a competitor means rewriting millions of lines of code, retraining engineering teams, and accepting inferior performance. This is why even companies building their own custom AI chips (Google TPUs, Amazon Trainium) still rely heavily on NVIDIA GPUs.

The latest Blackwell architecture (GB200/GB300 NVL72) is already in production, offering a massive leap in AI training and inference performance. With 40,000+ companies building on the NVIDIA platform, the company sits at the centre of the most transformative technology shift since the internet.

Data Centre

The growth engine — AI training & inference GPUs, DGX systems, networking (NVLink, Spectrum-X), and NVIDIA AI Enterprise software. Over 85% of total revenue.

Gaming

GeForce RTX GPUs for PC gaming with 80%+ discrete GPU market share. Ray tracing, DLSS, and AI-enhanced graphics keep the brand premium.

Auto, Robotics & Omniverse

DRIVE platform for autonomous vehicles, Isaac for robotics, and Omniverse for industrial digital twins. Early-stage but high-growth verticals.

2

Financial Fundamentals

Three tests every quality business must pass

Return on Invested Capital (TTM)
165%
Threshold: ROIC > 10%
Pass
Debt Servicing Ratio
~0%
Threshold: DSR < 30%
Pass
Total Debt / EBITDA (TTM)
0.10x
Threshold: Debt/EBITDA < 1x
Pass
Overall Financial Strength
Strong — All 3 criteria met
3

Moat Analysis

Five dimensions that determine competitive durability

Brand Loyalty & Pricing Power

9/10

NVIDIA commands 75% gross margins on hardware — unheard of in semiconductors. The brand is synonymous with AI computing. 94% data centre GPU market share and 80%+ gaming GPU share means customers willingly pay premium prices. 40,000+ companies run on NVIDIA technology.

High Barriers to Entry

9/10

The CUDA ecosystem took 20+ years and $100B+ in cumulative R&D to build. Competitors like AMD (ROCm) remain 2–3x behind in software maturity. Even Intel abandoned discrete GPU competition. Building a comparable chip-to-software full-stack is nearly insurmountable for new entrants.

High Switching Costs

9/10

CUDA lock-in is real. Code written for CUDA cannot run on AMD or Intel GPUs without costly re-engineering. Tech giants have invested billions in NVIDIA-based data centres. Switching means rewriting hundreds of thousands of lines of code, retraining teams, and accepting months of disruption.

Network Effect

7/10

4 million+ CUDA developers create a powerful flywheel: more developers write more CUDA libraries, making the platform more valuable, attracting more developers. Academic institutions train students on CUDA, reinforcing the cycle. However, it is an indirect B2B network effect rather than a direct consumer platform.

Economies of Scale

8/10

94% market share drives manufacturing scale, better TSMC wafer pricing, and massive R&D amortisation across a huge install base. $130.5B revenue means NVIDIA can outspend any competitor on R&D while maintaining 75% gross margins. However, NVIDIA relies on TSMC for fabrication, limiting some scale advantages.

Overall Moat Score
8.4/10
Wide Moat
Average score > 7 = Wide Moat • 5–7 = Narrow Moat • < 5 = No Moat
4

Bull & Bear Thesis

Both sides of the coin — so you can decide for yourself

Bull Case

AI Infrastructure Spend is Just Beginning
Hyperscalers (Microsoft, Google, Amazon, Meta) are spending $200B+ annually on AI infrastructure. NVIDIA captures the majority of this spend. As AI workloads grow exponentially, so does demand for NVIDIA GPUs. The AI capex cycle could last a decade.
CUDA Ecosystem is Unassailable
20+ years and 4 million developers have created a software moat that no competitor can replicate. PyTorch, TensorFlow, and every major AI framework is deeply optimised for CUDA. This is the Microsoft Windows of AI computing — a self-reinforcing standard.
Full-Stack Integration
NVIDIA is not just selling chips. It sells GPUs + networking (NVLink, Spectrum-X) + software (AI Enterprise, Omniverse) + systems (DGX). This vertically integrated approach increases lock-in and average selling prices with each product generation.
Fortress Balance Sheet
Net cash position ($11.5B cash vs $10B debt), $60.85B free cash flow, and 165% ROIC. This business generates cash at a rate that funds massive R&D, strategic acquisitions, and $50B+ in buybacks — all simultaneously.

Bear Case

Custom Silicon Threat
Google (TPUs), Amazon (Trainium/Inferentia), and Meta are all building custom AI chips. As AI workloads mature and become more standardised, custom silicon could capture an increasing share of the market, reducing NVIDIA's dominance over time.
Cyclicality Risk
Semiconductors are inherently cyclical. If hyperscaler capex slows, digestion periods could create sharp revenue declines. NVIDIA's revenue grew 114% in FY2025 — maintaining that trajectory is mathematically impossible, and any deceleration could hit the stock hard.
Geopolitical Export Controls
U.S. export restrictions have already cut NVIDIA's China market from 95% to roughly 50% share. Further tightening of regulations could close off a massive revenue stream. China represented a significant portion of data centre revenue before the restrictions.
Concentration & TSMC Dependency
NVIDIA designs chips but relies entirely on TSMC for manufacturing. Any disruption at TSMC — whether from natural disaster, geopolitical conflict involving Taiwan, or capacity constraints — would directly impact NVIDIA's ability to deliver products.
5

Growth Drivers

Where the next wave of revenue comes from

Blackwell Architecture Ramp

The Blackwell GPU platform (GB200/GB300 NVL72) is already in production with demand far exceeding supply. It delivers a 4x performance leap in AI training and a 30x improvement in inference over the prior Hopper generation. Every major hyperscaler has placed orders.

AI Inference Market Expansion

While AI training drove the first wave, inference (running AI models in production) is a much larger long-term market. Every chatbot response, every AI search result, every autonomous driving decision requires inference compute. NVIDIA's TensorRT and inference-optimised GPUs are positioned to capture this.

Sovereign AI & Enterprise

Nations are building their own AI infrastructure for data sovereignty. NVIDIA is partnering with governments worldwide to build national AI supercomputers. Meanwhile, enterprise adoption is just beginning — most of NVIDIA's $130.5B revenue comes from a handful of hyperscalers. Enterprise AI is the next massive wave.

Robotics & Autonomous Vehicles

The NVIDIA DRIVE platform powers autonomous vehicle development at Toyota, Mercedes, and dozens of others. Isaac for robotics and Omniverse for digital twins are early but high-potential verticals. As physical AI matures, these segments could become multi-billion dollar revenue streams.

6

Investment Risks

Every investment has risks — here is what could go wrong

Customer Concentration

A handful of hyperscalers (Microsoft, Google, Amazon, Meta) account for a massive share of NVIDIA's data centre revenue. If even one major customer shifts to custom silicon or reduces capex, the revenue impact could be significant.

High Severity

Geopolitical & Export Restrictions

U.S. government export controls have already restricted NVIDIA's sales to China. Further tightening — or retaliatory measures — could cut off access to one of the world's largest AI chip markets and disrupt global supply chains.

High Severity

AI Capex Cycle Slowdown

If AI infrastructure spending enters a digestion phase — where companies pause to utilise what they have already built — NVIDIA's revenue growth could decelerate sharply. Semiconductor cycles have historically been brutal, and 114% growth is not sustainable forever.

Medium Severity

TSMC Single-Source Risk

NVIDIA depends entirely on TSMC for chip fabrication. A natural disaster in Taiwan, a geopolitical conflict, or severe TSMC capacity constraints would directly impact NVIDIA's ability to produce and deliver GPUs. This is an existential supply chain risk.

Medium Severity
7

Valuation & Intrinsic Value

What is this business actually worth?

Undervalued
13%
Below Intrinsic Value

As of 16 February 2026, NVIDIA (NVDA) is trading at approximately 13% below its estimated intrinsic value based on our discounted cash flow model. With $130.5B in revenue, $60.85B in free cash flow, 165% ROIC, a fortress balance sheet, and dominance across the most transformative technology shift in a generation, the current price offers a modest margin of safety for long-term investors.

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Disclaimer

This research is for educational purposes only and does not constitute financial advice. The information presented is based on publicly available data and our independent analysis. Always do your own research and consult a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results.

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