1. Introduction

NVIDIA Corporation is a leading global technology company headquartered in Santa Clara, California, founded in 1993 by Jensen Huang, Chris Malachowsky and Curtis Priem. With the original goal of designing graphics processing units (GPUs) for personal computers and advancing graphics technology, NVIDIA operates in a few key technology areas including gaming, data center, professional visualization, automotive, and artificial intelligence and deep learning. The company is known for its continued technological innovation, and it has significant technical achievements in the areas of CUDA technology, Tensor Cores and ray tracing. Among them, CUDA (Compute Unified Device Architecture) is a parallel computing architecture introduced by NVIDIA that enables developers to utilize the computing power of GPUs for scientific computing and AI model training.

NVIDIA's revenue comes primarily from GPU sales, particularly in the gaming and data center segments. At the same time, the contribution from these emerging markets is growing rapidly with the rapid development in AI, autonomous driving and specialized visual computing. It has demonstrated strong profitability over the past few years. The company's innovations have driven high demand for its products, particularly in the growth of gaming and AI applications. It is one of the most valuable technology companies in the world, NVIDIA's market capitalization reached an all-time high in 2024, and the strong performance of its shares reflects the market's recognition of its technology leadership.

NVIDIA has strong competitors in several areas. In the GPU market, AMD is NVIDIA's main competitor. Its Radeon series competes with NVIDIA’s GeForce series in gaming and professional GPUs. Its MI series, including MI100 and MI200 accelerators, target deep learning and AI workloads, competing with Nvidia’s Tensor Core GPUs. Plus, its EPYC processors and Instinct GPUs offer a powerful combination for data centers, particularly in high-performance computing and cloud computing environments. The EYPC Milan series, in particular, has shown substantial performance improvements, challenging both Nvidia and Intel [1]. While Intel has traditionally been the dominant player in the CPU market, it is also expanding into GPUs and AI gas pedals in an attempt to compete with NVIDIA. And in the data center and AI space, tech giants like Google and Amazon are developing their own AI chips to challenge NVIDIA's market dominance.

NVIDIA is expected to continue to benefit as AI technology becomes more widely used, especially in areas such as autonomous driving, healthcare, finance and manufacturing. Its GPU and AI platforms will continue to drive advances in deep learning and AI technology in the coming years. NVIDIA has also dabbled in meta-universe technology with the launch of its Omniverse platform, which allows users to create virtual worlds and collaborate in 3D. With the popularity of virtual reality and augmented reality, meta-universe could be an important growth area for NVIDIA in the future.

2. Accounting Analysis

Because NVDIA released the Announces Financial Results for Second Quarter Fiscal 2025 on August 28,2024, so the accounting policies are analyzed based on the 2024 Annual Report, adjusting with any changes of accounting policies in the 1st and 2nd Quarterly Report for 2025 [2-4]. Three areas, revenue recognition, treatment of research and development expenses, and inventory valuation require management to exercise higher degree of judgment or significant estimates.

2.1. Revenue Recognition

In fiscal year 2024, NVIDIA's revenues are primarily derived from its five core business areas: Gaming, Data Center, Professional Visualization, Automotive, and OEM and Other. The Company recognizes revenue in accordance with U.S. Generally Accepted Accounting Principles (GAAP), specifically based on the completion of its performance obligations, which is consistent with relevant accounting standards [5].

2.1.1. Revenue sources.

The data center and gaming businesses are the two revenue pillars of NVIDIA in FY2024. With the widespread adoption of Artificial Intelligence (AI) and Deep Learning, revenue from the Data Center business has grown significantly, making it the Company's most significant source of revenue. NVIDIA recognizes revenue as contracts are fulfilled to critical delivery points by providing customers with high-performance GPUs and related software products. The gaming business, on the other hand, continued to grow steadily, particularly driven by its GeForce line of graphics cards. Revenue from this segment is recognized primarily through hardware sales and is recognized as revenue upon product delivery or transfer of control.

2.1.2. Critical Accounting Policies for Revenue Recognition

NVIDIA's revenue recognition policies vary across its business areas, but basically follow the principles below:

Product sales. The Company recognizes revenue when the customer obtains control of the product. For hardware products, revenue is typically recognized when the product is delivered to the customer and the customer acquires ownership.

Services and subscription revenue. NVIDIA recognizes revenue progressively in proportion to the completion of performance obligations when it provides subscription services or support agreements. For example, in the case of its AI software and development platform services, revenue is recognized in installments over the service delivery period.

Partners and Custom Chips. In fiscal year 2024, NVIDIA also entered into long-term supply agreements with several strategic partners, particularly in the areas of autonomous driving and AI. For the development and delivery of these customized chips, revenue is recognized progressively over the delivery schedule and contract terms.

2.1.3. Special Revenue Processing

In 2024, NVIDIA's projects in the AI and data center space typically involve large contracts and long-term agreements. In such contracts, NVIDIA recognizes revenue in installments based on the progress of project completion and customer acceptance. This method of revenue recognition more accurately reflects NVIDIA's performance and financial performance and ensures that revenue is aligned with the actual delivery schedule.

2.1.4. Revenue Recognition Challenges

NVIDIA has a few complex judgments to contend with during the revenue recognition process, particularly with respect to custom chip and partner programs. As these projects often involve extensive technology development and customization requirements, the timing of revenue recognition and the measurement of performance obligations can have a significant impact on financial results. Therefore, the Company reasonably estimates and recognizes revenue on a contractual schedule based on historical experience and contractual terms.

2.2. Treatment of Research and Development Expenses

In fiscal year 2024, NVIDIA continued to increase its investment in research and development (R&D) to maintain its leadership in cutting-edge technologies such as graphics processing units (GPUs), artificial intelligence (AI), autonomous driving, and data centers. According to the earnings data, NVIDIA's R&D expenses increased significantly to $7.45 billion in fiscal year 2024, a significant increase from the previous year. This reflects the company's strong focus on future technological development, especially its investment in technological innovation in areas such as AI, deep learning, and high-performance computing.

2.2.1. R&D Expenses as a Percentage

In FY2024, NVIDIA's R&D expenses as a percentage of total revenue will be approximately 22.6%, which is at a high level compared to other technology companies in the industry. This demonstrates NVIDIA's commitment to maintaining a competitive edge through technology R&D and innovation, especially in emerging markets such as data centers, autonomous driving, and the Omniverse. Such a high level of R&D investment further enhances the company's product innovation and market competitiveness.

2.2.2. Important Areas of R&D Investment

NVIDIA's R&D expenditures are focused on the following key areas:

GPUs and AI-accelerated computing. NVIDIA continues to optimize its GPU architecture, particularly for deep learning and high-performance computing. Its Tensor Core GPUs are widely used for AI model training and inference, driving the company's dominant position in the AI accelerated computing market.

Autonomous Driving Technology. Through its NVIDIA DRIVE platform, NVIDIA has significantly increased its R&D investment in self-driving car technology, aiming to provide AI computing power for future driverless cars. Such R&D investments not only drive technological advancements, but also enhance partnerships with global automakers.

Omniverse Platform. NVIDIA is also heavily developing its Omniverse platform, a platform for creating virtual worlds and 3D collaboration. NVIDIA's R&D investment in this area will be an important growth driver for it in the future as meta-universe technology evolves [5].

2.2.3. Impact of R&D Expenditures

High R&D investments are critical to NVIDIA's long-term competitiveness. Although the increase in R&D expenses may put some pressure on the company's operating margins in the short term, in the long term, these investments will propel the company's breakthroughs at the forefront of technology and lay the foundation for its future revenue growth. For example, NVIDIA's A100, H100 and other data center chip products have gained high recognition in the market for their powerful AI processing capabilities, which is the result of the company's continued R&D investments [6, 7].

2.2.4. Accounting for Research and Development Expenses

NVIDIA's R&D expenses are all charged to current profit and loss in accordance with U.S. Generally Accepted Accounting Principles (GAAP) without capitalization. This accounting treatment means that the company records all R&D expenses at once in the current period's income statement, which to some extent affects its short-term profitability. However, this strategy reflects the company's high reliance on technological innovation and provides a solid foundation for future technological breakthroughs and market expansion.

2.3. Inventory Valuation

In fiscal year 2024, NVIDIA saw a significant increase in the value of its inventory, reflecting the company's inventory management strategy in response to growing global demand for semiconductors and tight supply chain conditions. NVIDIA's inventory increased to $7.75 billion from $5.77 billion in fiscal 2023, an increase of approximately 34.3%, according to the earnings data. The change was driven primarily by the company's expansion of production to meet strong demand in data centers, gaming and AI, and also reflects the impact of global semiconductor supply chain pressures.

2.3.1. Inventory Composition Analysis

NVIDIA's inventory consists primarily of raw materials, work-in-process and finished goods. In fiscal 2024, an increase in finished goods inventory was the primary reason for the rise in the total value of inventories as the Company continued to ramp up its GPU production capacity, particularly as demand for high-performance chips in the AI and datacenter businesses grew significantly. The Company has also stockpiled additional raw materials in response to global supply chain uncertainties to ensure that it is able to meet the continued demand for its products in the market.

2.3.2. Inventory Management Strategy

Due to the high demand in the semiconductor industry and the volatility of the supply chain, NVIDIA has adopted a more conservative inventory management strategy in fiscal year 2024 by increasing its inventory holdings of key raw materials and finished goods [8]. As global chip shortages continue, NVIDIA reduces the risk of supply chain disruptions by increasing inventory levels to ensure its production capacity and market supply stability.

2.3.3. Inventory Turnover Ratio

Despite a significant increase in inventory value, NVIDIA's inventory turnover ratio remains at a reasonable level, reflecting the company's steady performance in its ability to sell high-tech products quickly. The financial results show that inventory turnover was 4.5 times in FY2024, slightly lower than the 4.8 times in FY2023. This slight decrease was primarily due to a larger increase in inventory, indicating that the company is responding to rapidly growing market demand while ensuring stability of supply.

2.3.4. Inventory Valuation Method and Impact

NVIDIA utilizes the First-In-First-Out (FIFO) method of inventory valuation, which is particularly important in the semiconductor industry where prices are volatile. Because the FIFO method provides a more timely reflection of inventory costs in response to market price fluctuations, NVIDIA is able to adjust its product pricing more flexibly in response to increases in raw material prices, thereby ensuring a relatively stable gross profit margin.

2.3.5. Inventory Impairment

In fiscal year 2024, NVIDIA did not report any significant inventory impairment losses, indicating the company's optimism about the market demand for inventory and future sales expectations. Despite the challenges posed by the tensions in the global supply chain, NVIDIA still avoids the risk of excess inventory and impairment through flexible supply chain management and accurate forecasting of demand.

3. Analysis of Financial Statements

3.1. Revenue Structure and Growth Analysis

3.1.1. FY2024 Performance

According to NVIDIA's 2024 Annual Report, the company's total revenue continued to grow, driven by contributions from its data center and gaming businesses. In particular, rapid expansion in the AI and datacenter markets drove its revenue growth. FY2024 data shows that NVIDIA's revenue growth in datacenters reached record levels, benefiting from increased demand for AI computing across industries.

3.1.2. Q2 FY2025 Performance

In its Q2 FY2025 results, NVIDIA continued its strong performance, particularly in the data center segment, with quarterly revenue growth of more than 170% year-over-year. This demonstrates the continued strong demand for AI applications and deep learning markets, and that NVIDIA has solidified its leadership position in AI-accelerated computing.

3.1.3. Summary

With the penetration of AI in various industries, NVIDIA's expansion in AI computing platforms makes its future revenue growth highly sustainable. In addition, the continued steady growth of the gaming business provides a solid foundation for the company. Through segmentation analysis, it can be seen that the data center business will be the main growth driver of revenue in the coming years.

3.2. Profitability Analysis

3.2.1. Profitability in FY2024

NVIDIA maintained strong profitability in FY2024. The company's gross margins remained at a high level of about 64%, due to the high price premium in the market for its high-technology products. Operating margins also performed well, indicating that the company is efficient in managing costs and operating expenses.

3.2.2. FY2025 Q2 Profitability

NVIDIA's gross margin further improved to 71.2% as of Q2 FY2025. This was attributed to the high margin product portfolio in the AI computing and data center markets. In the quarterly report, the company also mentioned that its high margins further drove overall profitability due to surging demand in the data center business.

3.2.3. Summary

High gross margins reflect NVIDIA's technology leadership and pricing power in high-tech markets. As the AI market grows, demand for NVIDIA's products remains strong and there is potential for further margin improvement. This trend suggests that the company's profitability will continue to strengthen in the future.

3.3. Cash Flow Analysis

3.3.1. FY2024 Cash Flow

According to the 2024 Annual Report, NVIDIA's operating cash flow performance was very solid, demonstrating strong cash generation. Cash flow from operating activities amounted to $14.6 billion for the year, primarily derived from the profitability of the company's core businesses. This strong operating cash flow provided the company with sufficient funds to support its strategic investments in R&D, M&A, and other strategic investments.

3.3.2. FY2025 Q2 Cash Flow

NVIDIA's operating cash flow continued to be strong in the second quarter of fiscal year 2025. The company reported Free Cash Flow (FCF) of $6.7 billion for the quarter, a significant increase over the same period last year. This provides a solid foundation for NVIDIA's further capital investment and shareholder return programs.

3.3.3. Summary

NVIDIA's strong cash flow is the foundation for its continued investment in R&D and technology innovation, while also providing the company with a financial safety cushion against future market uncertainty. The growth in cash flow means that the company is more sustainable in expanding its business.

3.4. Balance Sheet and Capital Structure Analysis

3.4.1. Balance Sheet Performance in FY2024

In 2024, NVIDIA's balance sheet shows a strong financial structure. The company's large cash and cash equivalents holdings provide ample liquidity for its technology innovations and future investments. Notably, NVIDIA continues to operate with low debt in FY2024, with its long-term debt remaining at a low level.

3.4.2. FY2025 Q2 Balance Sheet Update

The Q2 FY2025 earnings report shows that NVIDIA's balance sheet remains very strong, especially against the backdrop of its current large-scale technology investments, and still maintains a low debt ratio. The report notes that the company holds more than $16 billion in cash, which will support future mergers and acquisitions, technology development, and global expansion.

3.4.3. Summary

NVIDIA's healthy capital structure, low debt levels and strong cash reserves make the company less risky when it comes to strategic expansion. At the same time, this provides adequate resilience to possible future market volatility.

3.5. Market Valuation and Shareholder Returns

3.5.1. Shareholder Returns

NVIDIA continued to reward its shareholders through share buybacks and dividends over the past year, according to its 2024 annual report. The company returned a significant amount of cash through share repurchases and further increased its dividend level in FY2024. NVIDIA's shareholder return policy remains aggressive, returning $4.5 billion through buybacks and dividends in the second quarter, according to its fiscal 2025 Q2 earnings report.

3.5.2. Market Valuation

NVIDIA's share price reached an all-time high in 2024, reflecting the market's high recognition of its future growth. In the second quarter of 2025, NVIDIA's price-to-earnings (P/E) ratio remains high, reflecting the market's strong expectations for its technology leadership and future growth potential.

3.5.3. Summary

Through its aggressive shareholder return policy and high market capitalization, NVIDIA has not only gained high market recognition, but also strengthened investor confidence through its shareholder return strategy. The higher P/E ratio also shows investors' expectation of its long-term growth.

4. Strategic Objectives & Forecast

NVIDIA's strategic objectives are focused on strengthening its global leadership position in the emerging areas of artificial intelligence (AI), data centers, autonomous driving, and metaverse through technology innovation and market expansion. Widespread adoption of artificial intelligence and advances in deep learning technologies have provided a huge boost to NVIDIA's growth. The Company relies on its GPUs and accelerated computing platforms to dominate the AI computing and data center markets. NVIDIA plans to further enhance its AI-accelerated computing capabilities and meet the demand for AI technologies across industries by launching more powerful GPU offerings, such as the H100 and Grace Hopper, and optimizing its CUDA platform. NVIDIA's AI and data center businesses are expected to continue to deliver high double-digit revenue growth as AI continues to expand. NVIDIA's DRIVE platform is fast becoming a key technology platform in the self-driving car space and is widely used by the world's leading automakers. Through cooperation with many automotive companies, the Company has technology and market leadership in autonomous driving and in-vehicle AI. NVIDIA plans to continue to expand its technology investments in this area to drive the popularization of self-driving cars, and expects this business segment to become a new revenue growth point in the coming years [9]. NVIDIA's Omniverse platform provides an innovative technology foundation for users to create virtual worlds and collaborate in 3D. With the rapid growth of metaverse and virtual reality (VR) technologies, NVIDIA is cutting into this emerging market with its Omniverse platform, which provides powerful digital collaboration tools for creators, designers and businesses. The platform is expected to generate significant business opportunities and revenue growth for the company in the coming years as the metaverse market continues to expand [10].

5. Conclusion

In summary, NVIDIA has demonstrated exceptional financial strength and innovation in 2024, driven by its leadership in artificial intelligence, data center technology, and gaming. The company’s ability to generate sizable revenues from emerging markets such as AI computing and autonomous driving reflects its strategic vision and execution. With a robust capital structure, strong cash flow, and significant investments in research and development (R&D), NVIDIA is well positioned to capitalize on the expanding opportunities within AI and related fields.

Furthermore, NVIDIA's commitment to continuous innovation is evident in its R&D expenditures, which not only enhance its current product offerings but also pave the way for groundbreaking advancements. This proactive approach enables the company to stay ahead of competitors and adapt to rapidly changing market dynamics. The analysis indicates that NVIDIA's innovative technologies and strategic focus on high-growth markets, including autonomous driving and AI, will continue to propel its success.

Given its market leadership position and strong financial fundamentals, NVIDIA remains an attractive option for investors seeking long-term growth. The company’s ability to navigate market challenges and leverage its technological expertise positions it favorably for sustained performance in the years ahead, making it a compelling choice for those looking to invest in a future-oriented tech leader.