Analysis of NVIDIA’s SchedMD Acquisition

The AI boom helped NVIDIA (NASDAQ: NVDA) deliver a record breaking fourth quarter recently. With most tech players announcing mega AI investments, that trend is expected to continue. NVIDIA is focusing on product offering expansion through acquisition and innovation to meet the demand.

NVIDIA’s Financials

NVIDIA’s revenues grew 73% to $68.1 billion, ahead of market estimates of $66.2 billion. Non GAAP EPS of $1.62 is also ahead of market estimates of $1.53.

By segment, revenue from data center division, which includes AI chips and related parts, came in at $62.3 billion versus market estimates of $60.7 billion. Revenue from its gaming division grew 47% to $3.7 billion, professional visualization segment grew 159% to $1.32 billion, and the automotive and robotics division grew 6% to $604 million.

NVIDIA ended the year with revenues growing 65% to $215.9 billion and EPS rising 67% to $4.90.

For the first quarter, NVIDIA expects revenues of $78 billion, plus or minus 2%. The market was looking for revenues of $72.6 billion.

NVIDIA’s SchedMD Acquisition

Last quarter, NVIDIA announced plans to acquire open-source workload management system provider, SchedMD, for an undisclosed sum. SchedMD is the leading developer of Slurm, an open-source workload management system for high-performance computing (HPC) and AI. Slurm helps power nearly 60% of supercomputers globally. Nvidia and SchedMD have been collaborating on Slurm development for over 10 years. Slurm’s offerings help computers schedule computing tasks, train LLMs that power chatbots such as Anthropic’s Claude. Slurm also runs on government supercomputers to forecast the weather and develop nuclear weapons.

Nvidia plans to leverage Slurm’s offerings to expand its investment in open-source technology that helps with AI’s development. NVIDIA plans on accelerating SchedMD’s access to new systems so that NVIDIA’s users will have access to accelerated computing platform to optimize workloads across their entire compute infrastructure while supporting a diverse hardware and software ecosystem. NVIDIA will continue to offer open-source software support, training, and development for Slurm to SchedMD’s customers.

Utah-based SchedMD was founded in 2010 by Morris Jette and Danny Auble. Prior to the acquisition, SchedMD was privately held and did not disclose its financials, funding details or valuation estimates.

Meanwhile, NVIDIA also announced the upcoming release of its next-generation Vera Rubin rack-scale systems later this year. The company shipped out its first Vera Rubin samples to customers earlier this year. Vera Rubin is expected to be 10 times more powerful in terms of performance per watt than its predecessors. Energy consumption for AI chips is a growing concern, and NVIDIA is hoping to address it with improving the energy efficiency of its offerings.

NVIDIA is looking to benefit from the increased capex investments for the year announced by most tech giants. Overall, Alphabet, Amazon, Meta, and Microsoft are looking to invest over $700 billion in building out their AI infrastructure. But investors are skeptical about the sustainability of AI revenue. Last September, Nvidia announced plans to invest up to $100 billion in OpenAI to build out AI data center capacity. OpenAI was looking to build and deploy Nvidia systems that require 10 gigawatts of power.

Earlier this year, NVIDIA announced that the deal was now worth $30 billion. Unlike the earlier proposal, the latest investment is no longer tied to any deployment milestones, and is part of OpenAI’s latest funding round. NVIDIA attributed the shift in the deal size to OpenAI’s IPO plans. NVIDIA believes that this will be the last time that it will invest in OpenAI before it goes public. But the steeply reduced value of the deal has some investors worried who think that this probably represents a slowdown in spending on AI. Such a slowdown could impact revenue in the coming quarters.

NVIDIA is currently trading at $178.10 with a market capitalization of $4.3 trillion. It hit a 52-week high of $212.19 in November last year and has soared from the 52-week low of $94.46 in April last year.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

Photo Credit: Masaru Kamikura/Flickr.com

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