Nvidia's AI Deals: A Potential Upside Catalyst Amid Circular Concerns

Nvidia's aggressive deal-making has raised concerns about circularity and potential risks to its stock. However, the company's strong cash flow and overwhelming chip demand suggest that these deals are not a cause for alarm.

The comparison between Nvidia's current deals and those made during the 2000-era AI bubble is flawed, as the company's vendor financing in 26 years ago was fundamentally different from its modern-day agreements. Furthermore, Nvidia does not have to push its hardware to anyone, as it has been struggling to keep up with demand.

Jensen Huang's bets on frontier labs like Thinking Machines and Safe Superintelligence have received muted investor reactions, which may represent a hidden upside catalyst for the stock. In fact, the lack of positive reception in response to such deals could be a positive driver for Nvidia, as discounting Jensen Huang's ability to allocate capital is not a good move.

Nvidia has more than enough free cash flow coming in to do as it sees fit, and reinvesting in AI is a way to expand the firm's influence and dominance across the entire stack. The company's deal-making may be helping the AI market expand, and its selling to deep-pocketed giants cannot seem to get enough.