NVIDIA's Licensing Deal with Groq Fails to Offset Lofty Valuation and Persistent Risks

What happened

NVIDIA's stock price rose on news of a non-exclusive AI licensing agreement with Groq, integrating inference technology and leadership, capping a year of strong financial performance. The company reported FY25 revenue of $130.5B with 75% gross margins, driven by its dominant >80% share in AI accelerators. However, the DeepValue report notes NVIDIA trades at ~47x P/E and ~54x EV/EBITDA, with a 468% premium to DCF, embedding optimistic assumptions about sustained AI capex growth. Critically, this deal is non-exclusive and unlikely to meaningfully address core risks like export controls, customer concentration, or supply-chain dependencies on TSMC. Thus, while the news highlights ongoing strategic moves, it does little to alter the fundamental investment concerns surrounding NVIDIA's elevated valuation and unchanged risk profile.

Implication

The licensing agreement with Groq could slightly enhance NVIDIA's inference capabilities and ecosystem, potentially supporting near-term investor sentiment. However, it fails to alleviate the stock's stretched valuation, trading at ~4.7x above a conservative DCF, which assumes aggressive growth that may not materialize. NVIDIA's earnings remain highly concentrated among a few hyperscale customers, and geopolitical exposures like export controls continue to pose threats, unaddressed by this deal. Moreover, the non-exclusive nature suggests it may be more about monetizing IP than driving substantial new growth, possibly reflecting competitive pressures. Therefore, maintaining a cautious WAIT stance, as per the report, is prudent until evidence of sustainable growth or a valuation reset emerges.

Thesis delta

The Groq deal provides a marginal reinforcement of NVIDIA's software and inference ecosystem, potentially aiding its moat durability. However, it does not shift the investment thesis, as key issues—including the stock's high multiple, customer concentration, and geopolitical risks—remain unchanged. Thus, the recommendation to wait for a better entry point or clearer signs of enduring growth persists.