Geoffrey Seiler, The Motley Fool
4 min read
While Warren Buffett and Berkshire Hathaway have never owned Nvidia (NASDAQ: NVDA), the chipmaker actually fits the investment profile of the stocks he loves to own. The semiconductor stock has a wide moat with a durable, compounding business model that is trading at an attractive valuation.
Let’s dig deeper into why Nvidia should be considered a Buffett-style investment.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
A wide moat
Nvidia didn’t stumble into becoming the king of artificial intelligence (AI) infrastructure by accident. It was a carefully orchestrated plan that took many years to pay off, but it resulted in a wide moat in the space.
It all started with its CUDA software platform, which the company created to let developers program its powerful graphics processing units (GPUs) for tasks outside of their original purpose of speeding up graphics rendering in video games. Nvidia then took CUDA and planted it into universities and research labs that were doing early work on AI. That resulted in an entire generation of AI engineers trained on its software platform and most foundational AI code written using its software and optimized for its chips.
Those moves formed the wide moat that Nvidia sees in AI infrastructure today, particularly with regard to large language model (LLM) training.
However, the company did not stop there, designing a whole AI infrastructure ecosystem around CUDA and its GPUs. It developed its proprietary NVLink interconnect technology to help its chips act as a single unit, further widening its moat, and in 2020 it acquired next-gen networking company Mellanox, whose technology was arguably ahead of its time. Earlier this year, Nvidia “acquired” Groq to bring its language processing unit (LPU) technology into the CUDA ecosystem, putting Nvidia at the forefront of the fast-growing inference market.
Nvidia has also made other smart moves to make sure its moat remains intact. It locked in $500 billion worth of supply constrained high-bandwidth memory (HBM), which is needed to optimize AI chips, and it also acquired important open-source AI systems in SchedMD and HuggingFace to move into the critical software layers used to orchestrate and distribute AI.
In the span of two decades, Nvidia has gone from a video game chipmaker to a complete end-to-end infrastructure player with a wide and perhaps growing moat.
