Nvidia Stock and the Bright Side of the Groq Deal

Nvidia CEO Jensen Huang has made the company the dominant provider of artificial-intelligence chips. (PATRICK T. FALLON/AFP via Getty Images)

Key Points

• Nvidia’s shares slipped, following a 1.2% decline on Monday.
• Nvidia is acquiring a nonexclusive license for Groq’s technology for $20 billion, including employee compensation.
• The deal strengthens Nvidia’s AI inference capabilities, with inference workloads projected to grow from 20%-40% to 60%-80%.

Stock in Nvidia was edging down on Tuesday despite upbeat Wall Street assessments of its deal to license technology from the artificial-intelligence chip company Groq.

Nvidia shares were down 0.2% at $187.77 in early trading. The stock fell 1.2% on Monday.

Among other chip makers, Advanced Micro Devices was down 0.1% and Broadcom was up 0.2%.

The focus in news about Nvidia remains its recent agreement to purchase a nonexclusive license for technology from privately held Groq. Nvidia is paying $20 billion for Groq’s technology, including compensation packages for many of the company’s employees who will join Nvidia, The Wall Street Journal reported.

Nvidia didn’t respond to a request for comment from Barron’s about the Groq agreement.

The deal with Groq will strengthen Nvidia’s position in the market for chips to support inference—running AI models—according to Mizuho analyst Vijay Rakesh. He estimated in a research note that currently between 20% and 40% of AI workloads are dedicated to inference, and that will grow to 60%-80% over the next five years.

“We see this deal as a benefit to Nvidia in the long-run as it adds IP [intellectual property] to its engineering team to build its inferencing capabilities,” Rakesh wrote. He kept an Outperform rating and $245 target price on Nvidia stock.

However, the deal is coming with a hefty price tag. Groq had been projecting revenue of $1.4 billion in 2026, up from about $500 million this year and about $90 million in 2024, The Wall Street Journal reported, citing people familiar with its financials.

That means Nvidia’s agreement values Groq at a price-to-sales ratio of around 40 times currently. By comparison, Nvidia’s own price-to-sales ratio stands at about 27 times.

“This is a grab for technology and human capital, and the deal makes sense,” said Nancy Tengler, CEO at Laffer Tengler Investments. “Non-exclusive licensing will alleviate antitrust concerns. Nvidia has to put cash to work somewhere — might as well fend off (or buy) the competition.”

Write to Adam Clark at adam.clark@barrons.com