What Nvidia actually does

Nvidia was founded in 1993 and built its name making graphics cards for video games. The same type of chip, the GPU, turned out to be exactly what is needed to train and run large artificial intelligence models, because it can do thousands of calculations at once.

Today Nvidia sells far more than chips. It supplies complete systems for data centres, networking equipment that connects them, and the software layer that developers use to program them.

How the business makes money

Most revenue now comes from the data-centre business: cloud providers and large technology companies buying accelerators to build AI capacity. Gaming, professional visualisation and automotive chips make up the rest.

Nvidia designs its chips but does not manufacture them itself; production is outsourced to specialist foundries. That keeps the company asset-light and lets it focus on design and software.

Its real moat is CUDA, the programming platform that a generation of developers learned on. Switching away from it costs time and money, which protects Nvidia even when competitors build credible hardware.

The dividend story

Nvidia does pay a dividend, but it is tiny relative to the share price, and the company has made clear that reinvesting in growth comes first. Anyone buying Nvidia for income will be disappointed. The case for the shares rests on growth in earnings, not on cash paid out.

That does not make it irrelevant to a dividend investor. It is a useful reminder of the difference between growth stocks and income stocks, and why they behave so differently.

What to keep an eye on

  • Customer concentration. A handful of huge buyers account for a large share of sales.
  • Export controls. Rules on selling advanced chips to some countries can limit revenue.
  • Competition. Rival chip makers and customers building their own chips both threaten margins.
  • Cyclicality. Semiconductor demand has always moved in booms and slumps.

Quick take

Nvidia is one of the most important companies in modern technology, but not a dividend story. Study it as the growth side of the growth-versus-income debate, and use the chart below to see how volatile that growth can be.