The AI leader spends much less on research and development than its big tech peers.
Nvidia (NVDA -1.66%) has dominated stock market headlines over the last year, and for good reason.
The inventor of graphics processing units (GPUs) is leading the AI revolution as its chips have been in high demand ever since OpenAI unveiled ChatGPT in late 2022. Nvidia’s revenue has grown triple digits in each of its last five quarters, and the stock has jumped over 600% since the start of 2023, despite its recent pullback.
While Nvidia still might not be as well-known as some of its “Magnificent Seven” peers like Apple, Microsoft, and Alphabet, the company now seems to be the most innovative of the big tech companies as it powers the AI era with its hardware. Nearly every company competing or building AI offerings is doing it with Nvidia chips, and it’s expected to raise the bar with the launch of its Blackwell platform in the fourth quarter.
You might think Nvidia would have to spend the most aggressively on its technology in order to develop such a head start in AI, but the opposite is true as it actually spends much less on research and development than most of its “Magnificent Seven” peers.
Data by YCharts.
As you can see Nvidia has spent just $10.6 billion on R&D over the past 12 months, much less than Apple, Microsoft, Alphabet, or Meta Platforms.
But there’s more to the story than that.
Image source: Getty Images.
A master of efficiency
As of the end of its fiscal 2024, Nvidia had spent $45.3 billion on research and development over its history.
Among its foundational innovations are the GPU in 1999, which drove the growth of the PC gaming market, and the launch of the CUDA programming model in 2006, which allowed GPUs to be used for general purpose computing.
Nvidia GPUs have been central to the early development of AI — a network trained on its technology won an image recognition competition in 2012. In 2017, the company created its first Tensor Core GPU, used for high-performance computing, and it followed that up with its first autonomous driving system-on-chips (SOC).
Its pace of innovation has only accelerated since then, and those earlier innovations show the company has been building toward the current AI moment for a generation. And it’s done so by spending less on R&D in its entire history than Alphabet has spent in just the last year.
While Nvidia has scaled its business so effectively, some of its big tech peers have been known to spend billions on boondoggles. Alphabet, for example, will invest in projects that may never see the light of day, internally called “pantry mode.”
Meta has similarly invested tens of billions of dollars in its struggling metaverse, while Apple seems to have missed the mark with the Vision Pro and pulled the plug on its electric vehicle after years of work. Microsoft has also had a number of flops in its hardware business.
What it means for Nvidia
In addition to having significantly lower R&D expenses than its peers, Nvidia also has the highest operating margin in the Magnificent Seven at 62% as of its most recent quarter.
Those margins could moderate as the company faces more competition in the data center GPU space, but Nvidia’s impressive profitability and R&D efficiency offer more evidence of the company’s superior execution.
Nvidia has been building a technological foundation for AI over many years, and it’s now reaping the rewards. With its track record and momentum, Nvidia won’t be knocked off the industry’s throne easily. Expect the company to continue to deliver strong growth across its income statement over the coming quarters.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
