Because of its superior technology and extraordinarily profitable business model, Nvidia has become the central bank of the artificial intelligence revolution. Just as the Federal Reserve determines monetary policy for the United States and, in many cases, strongly influences monetary policy across the world, Nvidia influences almost every aspect of the AI revolution. This is one reason so many eyes will be upon the company as it unveils its latest earnings results on Wednesday.
Nvidia generates extraordinarily high profit margins. Its gross margin, the difference between the cost of producing its products and the revenue it receives from selling them, is around 75%. In practical terms, that means Nvidia generates extraordinary amounts of free cash flow. For its current fiscal year, which ends in January 2027, Nvidia is projected to produce about $150 billion in free cash flow. Nvidia uses that cash to influence nearly every part of the global AI revolution, including compute capacity, which has become the currency of the revolution.
Over the past three years, Nvidia has increased its earnings and free cash flow at an astounding rate. Net profit has risen from about $30 billion in the fiscal year that ended in January 2024 to a projected $240 billion for the fiscal year ending in January 2027. The company devotes a good chunk of that to research and development. This fiscal year, Nvidia will spend about $25 billion on R&D. But large amounts of capital will also be used to help companies finance purchases of Nvidia’s most advanced accelerated computing platforms. This is a form of circular financing, but it is not fundamentally different from the financing arms operated by vehicle manufacturers or home builders.
Moreover, Nvidia is expanding its reach across the entire AI ecosystem. This week, Nvidia invested in Emerald AI, a software company that improves the energy efficiency of data centers. Emerald’s technology turns energy-intensive AI data centers into flexible grid assets that can help balance electricity supply and demand. Energy has become a critical bottleneck in the buildout of data centers in the U.S. It is also an increasingly politicized issue, raising concerns by some voters that data centers will increase their bills.
Still, Nvidia’s most important effort to accelerate the AI revolution may be its recently announced partnership with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR to establish financing platforms designed to mobilize more than $500 billion of third-party capital for AI infrastructure. This financing vehicle could be revolutionary. Nvidia wants institutional investors to view AI computing infrastructure much as they view power plants, pipelines, aircraft, and other productive assets. In effect, Nvidia is helping to create a new investment asset class built around the semiconductors and data centers that form the foundation of the AI revolution.
Importantly, American financial institutions command more than $80 trillion in capital. Talk of insurmountable financial constraints on the development of AI is nonsense. The company is also using its own enormous financial resources to accelerate the AI buildout. Earlier this year, Nvidia invested $2 billion in CoreWeave, a specialized AI cloud provider. The two companies plan to cooperate on the construction of more than five gigawatts of AI data center capacity.
Nvidia has gone much further with OpenAI. In February, OpenAI announced a massive $110 billion capital raise that included a $30 billion investment from Nvidia. And Nvidia is spreading capital throughout the broader AI ecosystem. The company participated in nearly 67 AI venture capital transactions over the past 12 months.
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There is an obvious strategic logic behind all this activity. Nvidia generates extraordinary amounts of cash by selling AI infrastructure. It can recycle some of that cash into companies that build AI models, operate AI clouds, and construct data centers. Those companies, in turn, purchase or operate enormous quantities of Nvidia computing systems. More AI investment creates more demand for Nvidia products, which generates more cash that Nvidia can deploy throughout the ecosystem.
Nvidia is no longer simply supplying the chips that power the AI revolution. Increasingly, it is supplying the capital that finances it.
James Rogan is a former diplomat who later worked in law and finance for over 30 years. He writes a daily email on markets, economics, politics, and social issues. He can be reached at [email protected].
The writer owns shares in Nvidia.