Nvidia’s supercharged investment strategy is about more than returns

The chip maker more than tripled its investments last year as the company seeks to stay ahead of AI developments.

Nvidia president Jensen Huang often portrays the tech industry as fast-moving and the AI chip maker in danger of extinction if it doesn’t make early investments in the far-flung future.

Nvidia has become an investor darling thanks to an artificial intelligence boom built on its chips. More quietly, the company also has made itself into one of the business world’s hottest venture-capital investors.

Nvidia invested in about three dozen startups last year, according to Dealogic figures, more than tripling its activity from the previous year. The value of its investments in other companies reached about $US1.55bn ($2.34bn) at the end of January, according to Nvidia’s financial statements, up from $US300m a year prior.

The stakes are about more than betting on a good financial return. The investments give Nvidia a window into developing trends in tech as AI pushes into new industries and solves new problems. They also help the company build out the future ecosystem of businesses that depend on its technology at a time when rivals are attacking its dominance in the field of chips used to train powerful AI models.

Vishal Bhagwati, who leads one of Nvidia’s two venture-investment arms, said the uptick in activity wasn’t preprogrammed. It flowed naturally from the company’s surge to the forefront of the AI boom, he said.

“Our platform grew, and therefore our ecosystem grew,” he said. “And there were more and more companies on the platform and as part of the ecosystem that we wanted to support.”

Nvidia’s headquarters in Santa Clara, California. Picture: Justin Sullivan/AFP

Nvidia’s growth has been supercharged in the past year as its GPUs, or graphics processing units that are worth tens of thousands of dollars each, have become an essential resource amid Silicon Valley’s AI gold rush. Voracious demand for Nvidia’s advanced chips pushed its market value to beyond $US2 trillion last month, putting it below only Microsoft and Apple among the most valuable US companies.

The company’s venture investment strategy may offer a window into how Nvidia chief executive Jensen Huang thinks about the future. Huang, who signs off on every investment deal, often portrays the tech industry as fast-moving and Nvidia in danger of extinction if it doesn’t make early investments in the far-flung future.

Nvidia has made numerous investments in the medical and drug-discovery fields, for example, areas Huang has discussed as ripe for the application of AI.

“We’re fairly adept investors,” Huang said at a JPMorgan healthcare conference in January, speaking with the chairman of Recursion Pharmaceuticals, a drug-discovery company he invested $US50m in last year. “Please, if you have a hard time with computation or artificial intelligence, send us an email, we’re here for you.”

Umesh Padval, a managing director at the venture-capital firm Thomvest Ventures who has known Huang for decades, said the Nvidia investment strategy fits with its co-founder’s tendency to make bets based on a vision 10 years into the future. Thomvest participated with Nvidia in a funding round last year for Cohere, a Canadian AI company.

“The customer like Cohere will give them more details about what features are needed in the chips and their [software] to improve their next iteration of chips,” he said. “So it’s a close cooperation with both of them to try and get the right features and performance.”

Avram Miller, who co-founded Intel’s venture arm Intel Capital in the 1990s, said Nvidia was following a time-tested model of placing bets on companies that could eventually grow the broader market for its products.

“The ones that succeed will grow Nvidia as a whole, and the value of this will be way greater than the financial returns from the investment,” he said. “Nvidia realises it is not a time for over-analysing.”