NVIDIA Corp

Nvidia is the leading fabless semiconductor chip company with a dominant position in AI, data centres and accelerated computing. Its graphics processing units (GPUs) play a critical role in the AI ecosystem, while its CUDA software stack creates network effects and high switching costs to support a wide competitive moat. As the adoption of AI continues to accelerate across cloud computing, enterprise, and autonomous technology, demand for Nvidia’s chips remains strong. Management expects revenues to grow approximately 70% year-over-year in FY28, which is almost double consensus estimates. The stock trades at attractive valuations, and we believe there is good potential for dividend growth and shareholder returns.

Nvidia has been operating on an average two-year release cycle between product generations, further evidencing the faster than accounted for pace of technological innovation in AI hardware. The performance improvement, between generations of GPUs, has been so vast that these tech companies need to invest in the latest architecture to remain competitive. Our funds remain positioned toward companies that are monetising AI by enhancing their core products and services, rather than those whose business models rely on selling AI tools or cloud computing capacity as standalone offerings.

NVIDIA illustrates how those questions can be examined through knowledge and competitive advantages that already exist. Its hardware, CUDA software ecosystem, and relationships with developers embody knowledge accumulated and tested over decades. Those advantages help explain why NVIDIA has captured substantial value from the growth of AI it has helped enable. Of course, the key for investors was recognizing those advantages and the value NVIDIA could capture before they were fully reflected in its share price.

Despite a difficult short-term backdrop driven by political sentiment, Munro remains confident in AI being a structural driver over the medium term, reinforced by Nvidia’s earnings where demand continues to be very strong. The strong demand for Nvidia's products highlights its critical role in the high-performance computing sector, which is expected to grow significantly as AI technologies advance.

Nvidia is mentioned as part of the semiconductor sector, which is expected to contribute significantly to earnings growth. However, the letter discusses the potential decline in AI spending and its implications for semiconductor companies, including Nvidia, without providing a clear bullish or bearish stance on the company itself.

Nvidia is mentioned in the context of supply-chain reports linking Largan's technology to Nvidia's co-packaged optics supply chain, indicating a potential growth narrative. However, there is no explicit bullish or bearish argument made about Nvidia itself.

Despite a difficult short-term backdrop driven by political sentiment, Munro remains confident in AI being a structural driver over the medium term, reinforced by Nvidia’s earnings where demand continues to be very strong.

Nvidia was a top contributor to performance during the quarter. The company reported strong results and introduced a new sales breakdown that highlights demand from the largest cloud companies, with the underlying numbers lining up well with its long-term outlook. Management commentary and investor focus also reflected confidence that demand remains strong despite ongoing debate around AI investment sustainability. Additionally, management reiterated sustained expectations for multi-trillion-dollar AI spending over the long term, growing contributions from both hyperscaler and non-hyperscaler customers and increasing visibility into the company’s networking and emerging CPU opportunities. While competition and AI spending debates may contribute to periodic volatility, we believe the scale of the opportunity and Nvidia’s technological advantages position the company favorably over the long term.

We made several changes to the portfolio in May. A new position was added in the Information Technology sector with Nvidia (NVDA), the leading semiconductor company, known for its dominant position in semiconductor chips used in the training and inferencing of AI-models. Despite its status as the clear leader in AI and a beneficiary of rising AI capital investments, the stock has significantly underperformed other semiconductor stocks over the past year, potentially setting up for a reversion in relative performance. We believe the launch of the company’s next-generation Rubin architecture later this year could be the catalyst that will drive another wave of data center upgrade cycles as hyper-scalers take advantage of the step-up in energy efficiency.

Nvidia is positioned as a market leader in the current AI infrastructure cycle, achieving a $5 trillion market valuation backed by trailing 12-month revenue of $215.9 billion and a massive 53% operating margin. The company is part of a select group of hyperscalers generating significant free cash flow, which is crucial for funding the ongoing capital expenditures in AI. The commitment from OpenAI to purchase Nvidia GPUs is projected to account for as much as 13% of Nvidia’s projected $272 billion in 2026 revenue, highlighting its integral role in the AI ecosystem. This strong cash generation capability differentiates Nvidia from the speculative nature of the dot-com boom, positioning it favorably for long-term growth.