With $35 billion in cash, NVIDIA will start buying, buying, buying?

According to the Zhitong Finance APP, thanks to the artificial intelligence (AI) boom, NVIDIA (NVDA.US) is reaping substantial profits. This chip company, valued at $3.6 trillion, is increasing its spending on dividends and buybacks, yet its cash reserves continue to grow. NVIDIA's cash reserves have doubled over the past year, reaching $35 billion. With the election of Donald Trump as President of the United States and the relaxation of regulations, NVIDIA may reconsider mergers and acquisitions.

Since 2020, NVIDIA's cash has increased fivefold due to an eightfold revenue growth. Cash may continue to rise. Analysts at Bank of America expect NVIDIA's free cash flow to reach $200 billion or more over the next two years. At the current pace, dividends and stock buybacks over two years will consume about $60 billion, meaning the company's net cash will increase by about $140 billion. Along with its existing substantial funds, NVIDIA will have approximately $175 billion in idle liquid assets by early 2027, even surpassing the current cash king, Apple (AAPL.US). Coupled with NVIDIA's high valuation, this provides ample firepower for acquisitions.

NVIDIA's last attempt at a large-scale deal was in 2020 when it agreed to acquire chip architecture company Arm (ARM.US) for $40 billion in cash and stock. NVIDIA aimed to leverage the British company's fundamental semiconductor designs to enhance data center energy efficiency. However, the merger was announced as a failure after concerns were raised by regulators in the U.S., U.K., and EU.

Reuters columnist Robert Cyran believes that under the leadership of a new Trump administration, NVIDIA may have an easier time, especially if the proposed deals would strengthen the U.S. position in the AI field. However, acquiring another chip manufacturer may still be prohibited. If NVIDIA attempts to acquire companies like Marvell Technology (MRVL.US) or Arm that possess scarce technologies, Europe may oppose.

NVIDIA may venture into other areas. The last successful acquisition by NVIDIA was in 2019 when it acquired Mellanox Technologies for $6.9 billion, providing some clues for potential acquisitions. NVIDIA acquired this networking company because it saw a shift in computing from parallel work on a single processor to a broader distribution of work across different chips. These different devices must communicate with each other, and Mellanox provides the equipment to facilitate these interactions. Given the enormous workload of training and using AI models, this trend is strengthening. Therefore, Cyran believes that NVIDIA could theoretically spend $16 billion to acquire optical networking company Coherent (COHR.US), whose technology can quickly connect data center servers.

Additionally, NVIDIA founder Jensen Huang has demonstrated an extraordinary ability to foresee significant technological changes, and he may also choose more unconventional directions. With improvements in NVIDIA chips, computing costs are halved approximately every two and a half years. This trend may continue for some time, making hardware cheaper and more widespread, allowing more AI chips to appear outside of data centers. This is why Jensen Huang has repeatedly discussed new markets such as robotics, autonomous driving, and drug development NVIDIA is increasing its venture capital investments, having already invested in analytics company Databricks, robotics companies Serve Robotics and Figure, as well as drug development company Charm Therapeutics.

Of course, analysts' forecasts for NVIDIA may prove to be overly optimistic. Artificial intelligence has developed rapidly in recent years, largely due to significant investments from large companies. Some analysts warn that diminishing returns on investment could lead to a decrease in demand for AI chips. Another risk facing NVIDIA is that tech giants like Microsoft and Amazon may turn to in-house development. If the above scenarios come to pass, NVIDIA's cash reserve growth may fall short of current expectations.

On the other hand, a less optimistic outlook could even fuel Jensen Huang's acquisition activities, as he has a track record of quickly turning businesses profitable. NVIDIA's current cash reserves exceed the market capitalization of nearly half of the companies in the S&P 500 index, and if Jensen Huang chooses to remain inactive, it would greatly surprise the market