Nvidia Corp. is raising billions in cash, but one analyst believes the chip maker could inject an additional $100 billion into the pile if it starts to look more like Salesforce Inc.
nvidia out of stock,
It may unlock more money by developing businesses that expand recurring revenue, according to BofA Securities analyst Vivek Arya. The company has experienced some boom and bust cycles in recent years, and another crisis can be mitigated by developing long-term software contracts similar to those of Salesforce CRM.
WDAY, Inc.
and ServiceNow Inc. now,
Which generates recurring revenue from its customers.
Arya sees a path for Nvidia to generate $100 billion in additional free cash flow over the next two years if it can increase its recurring revenue options.
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“Although NVDA has a strong lead in AI, hardware-oriented work is underappreciated because visibility tends to be limited,” Arya wrote. Nvidia generates only about $1 billion, or 2%, from its software and subscription sales. Arya doesn't believe the company can raise much higher than $5 billion through its software and subscription offerings unless it resorts to acquisitions.
Nvidia has shown some openness to deals that would bolster its intellectual property and software offerings, Arya noted, as it tried to buy British chip designer Arm Holdings ARM,
Before facing organizational opposition.
“We imagine [Nvidia] Consider further enhanced partnerships/M&A for software companies that help traditional enterprise customers deploy, monitor and analyze [generative AI] Applications,” he wrote. Nvidia “already serves them via on-premises hardware and/or its DGX cloud service, but we believe a larger software/direct service channel can be even more impactful.”
In Arya's view, adding more recurring revenue streams could help Nvidia's “relatively discouraging trading multiples.” Nvidia stock trades at a 20% to 30% discount to its “Magnificent Seven” peers on a price-to-earnings plus enterprise value-to-free cash flow basis, even though the company's top-line compound annual growth rate is three times as high as The same applies to other technology giants.
The discount' is partly due to uncertainty in… [calendar 2025] “Growth prospects, in part due to the business being heavily hardware-based as opposed to its capital-intensive software/internet peers who have recurring revenue profiles.”
Arya has a Buy rating and a price target of $700 on the stock.
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