Nvidia has a cash problem — too much of it

When Nvidia this week said it would take a $2 billion stake in chip design company Synopsys, it was just the latest in a string of massive investments announced by the chipmaker this year.

Nvidia has also said it would take a $1 billion stake in Nokia, invest $5 billion in Intel and $10 billion in Anthropic — $18 billion in investment commitments from those four deals, not counting smaller venture capital investments.

That doesn’t even include the biggest commitment of all: $100 billion to buy OpenAI shares over a number of years, although there is still no definitive agreement, Nvidia finance chief Colette Kress said Tuesday.

It’s a lot of money and a lot of deals, but Nvidia’s got the cash to write big checks.

At the end of October, Nvidia had $60.6 billion in cash and short-term investments. That’s up from $13.3 billion in January 2023, just after OpenAI released ChatGPT. That launch three years ago was key to making Nvidia’s chips the most valuable tech product.

As Nvidia has transformed from a maker of gaming technology into the most valuable U.S. company, its balance sheet has become a fortress, and investors are increasingly wondering what the company will do with its cash.

“No company has grown at the scale that we’re talking about,” said CEO Jensen Huang, when asked what the company plans to do with all its cash, on Nvidia’s earnings call last month.

Analysts polled by FactSet expect the company to generate $96.85 billion in free cash flow this year alone and $576 billion in free cash flow over the next three years.

Some analysts would like to see Nvidia spend more of its cash on share repurchases.

“Nvidia is set to generate over $600B in free cash flow over the next few years and it should have a lot left over for opportunistic buybacks,” wrote Melius Research analyst Ben Reitzes in a note on Monday.

The company’s board increased its share repurchase authorization in August, adding $60 billion to its total. In the first three quarters of the year, it spent $37 billion on share repurchases and dividends.

“We’re going to continue to do stock buybacks,” Huang said.

Nvidia is doing the buybacks, but it’s not stopping there.

Huang said that Nvidia’s balance sheet strength gives its customers and suppliers confidence that orders in the future, which he called offtake, will be filled.

“Our reputation and our credibility is incredible,” Huang said. “It takes a really strong balance sheet to do that, to support the level of growth and the rate of growth and the magnitude associated with that.”

Kress, Nvidia’s CFO, on Tuesday said that the company’s “largest focus” is making sure it has enough cash to deliver its next-generation products on time. Most of Nvidia’s largest suppliers are equipment manufacturers like Foxconn and Dell, which can require that Nvidia provide working capital to manage inventory and build additional manufacturing capacity.

Huang called his company’s strategic investments “really important work” and said that if companies…