NVIDIA Corporation

On 30 June we published NVIDIA at $200.09 and concluded "Too hard": a magnificent business we could not value with the confidence we demand. For those who bought anyway, we suggested a margin of safety nearer the low $150s, with an alert at $155. The shares are $225.07 today. Here is the account.

Four right, three partly right, one wrong — and the wrong one is embarrassing rather than expensive. The calendar check that now opens every report on this site exists because of mistakes like it: a dividend changed in May, our data showed April's rate, and nobody looked.

One grade needs more than a row. Two days ago we wrote a new rule into our playbook after Microsoft: we will not demand a bargain for a wonderful business trading inside our own estimate of its value. Does June's NVIDIA verdict break it? We think not, and the reason matters. "Too hard" is not "too expensive". It says we cannot estimate the value with confidence — so there is no range to be inside. The rule governs verdicts about price; this one was about knowledge. The $155 alert, though, sat below the $247 our own DCF showed in June, and we should not have offered a number we did not believe in. We will not do that again.

In June we described NVIDIA as the seller of shovels in a gold rush: it did not need to know which miner would strike gold, because every miner needed shovels. That was the heart of its appeal. It is no longer quite true.

Over the past year NVIDIA has become one of the largest investors in artificial intelligence. Including public holdings, its equity investments stood at about $99bn on 26 July, with roughly $25bn more committed. The largest single cheque, about $30bn, went to OpenAI; it has also taken part in funding rounds for Anthropic and xAI, among many others, and on 26 September it was reported to be weighing a $10bn stake in Anthropic's planned IPO. Many of these companies are among the largest buyers of NVIDIA's chips.

Now look at what that does to the income statement. When a company NVIDIA owns raises money at a higher valuation, NVIDIA marks its stake up and books the gain. In the second quarter those gains on equity securities were $7.8bn before tax. For the first half of the fiscal year, NVIDIA's GAAP profit was $118.0bn; its own adjusted figure, which strips out those gains, was $99.5bn. About $18.5bn — roughly 16% of reported profit — came from the rising value of stakes, not from selling chips.

★ This is not an accounting trick; it is disclosed, and NVIDIA's own adjusted numbers exclude it. It is something subtler — a loop. NVIDIA invests in AI companies. Those companies use the money, and money raised from others on the strength of NVIDIA's endorsement, to buy NVIDIA chips. Their growing chip purchases make them look more valuable at their next funding round. That higher valuation becomes a gain on NVIDIA's books. Each step is rational. Together they mean that part of NVIDIA's demand and part of its profit now depend on the same thing: the continued willingness of investors to fund AI laboratories at rising prices.

Buffett has a view on vendor financing, which is what this resembles at one remove: the seller's profits look best exactly when the buyers are most dependent on the seller's own money. A business that finances its own demand has made its earnings more cyclical, not less. NVIDIA's core economics are no less extraordinary than they were in June. But the question "who is paying for all these chips, and with whose money?" now has NVIDIA's name in the answer.

The second quarter of fiscal 2027 (to 26 July) produced revenue of $96.2bn, up 18% on the previous quarter and 106% on the year; gross margin was 75.0%; GAAP earnings were $2.46 a share and adjusted $2.22. NVIDIA guided the third quarter to $108bn ±2% at a 74% gross margin — and, notably, assumes no data-centre compute revenue from China at all. Jensen Huang's summary on the day: AI "has reached its inflection point… compute is revenue."

Capital returned: about $26bn in the quarter; about $99bn of buyback authorisation remaining after May's additional $80bn; and the quarterly dividend, now $0.25, is next paid on 1 October.

Integrity: no veto. Capital allocation: we lower it from 9 to 8. Buybacks and the new dividend are unimpeachable. The equity portfolio is the reason for the point: it is a large, growing, lightly disclosed book of stakes in private companies that are also customers, and it now moves reported earnings by tens of billions a year. We do not think NVIDIA is doing anything improper. We think it is doing something that makes its own numbers harder to read, and that is the opposite of what we want from the companies we own.

On 18 May 2026 NVIDIA raised its quarterly dividend from $0.01 to $0.25, an increase of 2,400%, and approved another $80bn of buybacks. At $225 the yield is 0.44%. The six tests are almost trivial: cover on free cash flow is about 21× ($5.25 of trailing free cash flow per share against $1.00 of annual dividend); it is funded entirely from operations; the balance sheet holds net cash; nothing short of a collapse in AI spending could force a cut. The dividend is safe because it is small. Nobody should own NVIDIA for income; the signal is that the board now thinks the cash generation is durable enough to promise some of it back.

On forecasts NVIDIA is cheaper than it looks: 24 times this fiscal year, 14 times next, 10 times the year after. On the question of what those forecasts rest on, it is harder to own than in June. They now assume not only that AI spending keeps compounding and that customers keep choosing NVIDIA over their own chips, but also that the laboratories NVIDIA has invested in keep raising money at rising valuations — because that is where part of the demand, and part of the profit, now comes from.