oscargarcia updated the narrative for NVDA

NVIDIA’s Next Chapter: How Strategic Deals Are Powering a 10% Jump in Fair Value

1. Key Recent Deals & Strategic Moves

Here are several major arrangements NVIDIA has recently announced, and why they matter.

• NVIDIA-Samsung “AI Factory” collaboration

NVIDIA is partnering with Samsung Electronics Co., Ltd. to build a new “AI factory” powered by more than 50,000 NVIDIA GPUs. 

Why this matters:

• It anchors NVIDIA’s hardware into a major foundry/manufacturer, deepening their ecosystem integration.

• It supports the shift from “AI for compute” to “AI for manufacturing/industry” helping drive demand for NVIDIA’s chips.

• It provides a structural link to non‐traditional GPU markets (edge, robotics, industrial), which opens growth beyond the classic datacenter/graphics markets.

• NVIDIA Deal in South Korea – Supply of >260,000 Chips

NVIDIA announced the supply of over 260,000 of its latest AI accelerators to the South Korean government, plus major companies (Samsung, SK Group, Hyundai) for their AI infrastructure. 

Why this matters:

• It shows NVIDIA is capturing demand globally – not just U.S./China.

• Large volume deals like this can move the revenue needle materially.

• It signals to investors that the TAM (total addressable market) is expanding into manufacturing and edge/telecom/heavy industry.

• NVIDIA Investment in Nokia Corporation (~US$1 billion)

NVIDIA invested ~US$1 billion in Nokia, acquiring ~2.9% stake, and forging a partnership to integrate AI into telecom networks (AI-RAN, edge compute). 

Why this matters:

• It is a strategic equity move (not just a vendor deal). That gives NVIDIA upside if Nokia executes.

• It evidences NVIDIA’s strategy of “owning” or becoming a key partner in the infrastructure of AI, telecom, edge – meaning recurring demand for NVIDIA accelerators.

• It supports the narrative that NVIDIA is not just a chip supplier but a systems/stack player – which often commands higher valuation multiples.

• Market Milestone – $5 Trillion Market Capitalisation

NVIDIA recently became the first company to reach a market cap above US$5 trillion. 

Implication:

• Valuation already reflects very large expectations for future growth, making incremental deals important for sustaining the narrative.

• With such a large valuation, marginal improvements in growth or margin may have an outsized impact on the share price.

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2. Impact on NVIDIA’s Valuation

How do these deals feed into NVIDIA’s valuation?

Growth trajectory

• These deals point to accelerating demand for NVIDIA’s key product lines (AI accelerators, GPUs for datacenter/edge). With large contracts (South Korea, Samsung) the growth outlook is enhanced.

• They expand the TAM. For example, telecom/edge (via Nokia) opens new markets.

• Investors often pay for growth; NVIDIA’s recent capacity to secure large-scale deals helps justify a premium multiple.

Margin and profitability

• Large-scale deployments (50k+ GPUs) often lead to better economies of scale, software/hardware co-design synergies (with Samsung), possibly enhancing margins.

• However, some deals involve investments or partnerships (equity stakes) which may dilute or bring upfront costs – so margin benefit is not automatic.

Strategy & moat enhancement

• By embedding itself into manufacturing (Samsung), telecom networks (Nokia), and national infrastructure (South Korea), NVIDIA is building strong moats – making it harder for rivals to replicate.

• This supports a higher valuation multiple (P/E, P/FCF) because risk is perceived as lower and growth is more durable.

Risk/expectation alignment

• Conversely, with such a massive valuation, expectations are extremely high. The deals set a bar: NVIDIA must deliver. If execution misses (supply bottlenecks, margin compression, competitive pressure), the downside risk is elevated.

• Market will evaluate how much of future growth is already baked in. The deals help justify the valuation but also make the yardstick steeper.

Estimating the Incremental Impact

a. Revenue Contribution Estimate

Total expected incremental annualised revenue ≈ $10 – 12 billion.

NVIDIA’s FY2024 revenue base ≈ $90 B (run-rate).

So, incremental revenue growth ≈ 11–13%.

b. Profitability Translation

NVIDIA’s gross margin ≈ 74%, net margin ≈ 55%.

Assuming incremental business has similar or slightly better margins (since these are strategic, high-value deals):

Incremental Net Income Impact = 0.55 * 11% = 6.0%

So roughly a 6% upward revision to earnings power is reasonable.

c. Valuation Multiplier Effect

The market typically values NVIDIA on forward P/E or DCF growth assumptions.

If the long-term growth rate (g) rises by ~0.5–0.8 percentage points due to new deals, the DCF multiple expands slightly — about 3–4% additional uplift.

Total valuation effect:

• Earnings growth effect: +6%

• Multiple expansion effect: +3–4%

→ Total uplift ≈ 9–10%.

d. Updated Fair Value Estimate

New Fair Value = 190 * (1 + 0.09) = $207 share

3. Key Risks & Considerations

Even though the narrative is strong, there are several risks to be mindful of:

1. Execution Risk: Large deals can be delayed, scaled back, or fail to meet expectations (e.g., supply chain, chip yield, geopolitical).

2. Margin Pressure: Discounts for strategic partners, upfront investments or R&D costs tied to deals may reduce near‐term margins.

3. Competitive Risk: Rivals (eg, AMD, Intel, other AI chip firms) are also ramping. If a competitor wins major design wins, market share could shift.

4. Macro / Regulatory Risk: For instance, export restrictions to China impact NVIDIA’s market. These deals may be hampered by regulation.

5. Valuation Stretch: With a market cap of US$5 trillion, a lot of positive future is already priced in. Small disappointments may lead to outsized downside.

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4. Bottom Line & Strategic Perspective

• The recent deals clearly support NVIDIA’s valuation — they enhance growth prospects, bolster the ecosystem, expand TAM, and build a moat.

• From a valuation perspective, they help justify a premium multiple relative to peers.

• For the partner companies, the deals often represent a strategic inflection point (edge/AI growth).

• But given how elevated NVIDIA’s valuation already is, the magnitude of benefit and pace of realisation become critical. Investors will ask: when will this extra growth hit the numbers, and how much will convert to profit?

• My tactical takeaway: These deals add conviction to the long-term narrative on NVIDIA, but they don’t guarantee smooth sailing. Execution and margin deliverables will determine whether the multiple expands further or contracts.

• If you hold or are considering NVIDIA, you should monitor:

• Update on revenue from these deals (eg shipments to Korea, AI factory deployment)

• Margin trends (are these deals margin‐enhancing?)

• Competitive responses (how are rivals reacting?)

• Geopolitical/regulatory developments (export restrictions, trade tensions)

• From a portfolio perspective, if NVIDIA remains a large holding, these developments are positive, but you must still manage risk given the elevated valuation.