No trend has played a bigger role in sending the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite to record highs than the evolution and proliferation of artificial intelligence (AI). Empowering software and systems with the tools to make autonomous, split-second decisions is a $15.7 trillion global opportunity by 2030, according to PwC analysts.
And no company has been more foundational to this AI-driven rally than Nvidia (NVDA +1.30%), which has added nearly $4.8 trillion in market value since the start of 2023. While Nvidia's graphics processing units (GPUs) have done most of the heavy lifting, CEO Jensen Huang's company has racked up a nearly $20 billion profit from an unlikely source over the previous five months.
Image source: Nvidia.
Nvidia has set the infrastructure standard in enterprise data centers
Make no mistake about it, the lion's share of Nvidia's sales and profits comes from its high-margin data center segment. The company's several generations of GPUs, including Hopper, Blackwell, Blackwell Ultra, and Vera Rubin, are superior to external competitors on a compute basis. Huang intends to bring a new advanced chip to market each year, making it difficult for any of its peers to catch up.
In addition to its technical superiority, Nvidia is benefiting from favorable supply chain dynamics. Demand for AI chips continues to overwhelm their supply, leading to exceptional pricing power and a mid-70% gross margin.
NASDAQ: NVDA
Key Data Points
Give the CUDA software platform credit where credit is due, as well. CUDA is the toolkit developers use to maximize the performance of their GPUs, including training large language models. It effectively anchors customers to Nvidia's ecosystem of products and services.
But you might be surprised to learn that a notable portion of the tens of billions of dollars in profit Nvidia has generated since this year began originates from its investment portfolio.
Image source: Getty Images.
A timely investment has led to a nearly $20 billion windfall for Nvidia
No later than 45 calendar days following the end of a quarter, institutional investors with at least $100 million in assets under management, including businesses, are required to file Form 13F with regulators. A 13F allows investors to track which stocks Wall Street's smartest money managers (and businesses) bought and sold in the latest quarter.
Nvidia closed out the March-ended quarter with seven holdings, none of which is larger than chipmaker Intel (INTC +2.64%).
Huang's company announced in September that it would invest $5 billion in Intel and completed the purchase in late December at a predetermined price of $23.28/share. However, Intel closed out May at $114.68 per share, nearly quintupling Nvidia's initial investment and leading to an as-of-this-writing roughly $20 billion profit.
NASDAQ: INTC
Key Data Points
Although Intel is still working through its own struggles, demand for GPUs and central processing units (CPUs) in enterprise data centers is soaring. Intel remains a core player in CPUs.
On top of Nvidia's direct investment in Intel, the duo has partnered up from an infrastructure standpoint. Nvidia is incorporating Intel's customized x86 CPUs into its AI infrastructure platforms, while Intel is building and selling x86 system-on-chips that integrate Nvidia's RTX GPU chiplets.
Having the most influential AI stock in Intel's corner has been beneficial for both parties.
