Can Indian Technology Companies Match NVIDIA?

In the recent bull market, everyone is aiming for tremendous returns. Investors are particularly excited about multibagger stocks. The star of the show is none other than NVIDIA. This company creates the most advanced chips, systems and software for future AI factories. They also develop new AI services that help companies build their own AI factories. Vaishnavi Chauhan takes a closer look at companies beyond NVIDIA that are also at the forefront of this technology 

Artificial intelligence (AI) might sound like a new concept, but it’s actually quite old. Scientists and mathematicians in the U.S. have been exploring various AI concepts and theories since the 1940s. However, it was in February 1996 that the relationship between AI and humans changed significantly. One of the first AI computers, Deep Blue, defeated a world champion in a chess match. This event marked a significant milestone in the development of AI. 

The ultimate winner of the AI race might not be OpenAI, Google or Microsoft, but actually NVIDIA. In the last 18 months, NVIDIA’s market capitalisation has skyrocketed almost 10 times, from USD 280 billion to USD 3.012 trillion, making it the second most valuable company ahead of Google and Apple. The reason for its dominance is its GPUs, which power 88 per cent of the world’s AI infrastructure. Whether it’s ChatGPT or Gemini, all these AI models rely on NVIDIA GPUs for training and usage. 

OpenAI uses 10,000 NVIDIA A100 GPUs to train GPT 4, and NVIDIA’s next-gen H100 GPUs are even more powerful. Meta plans to purchase 350,000 of these GPUs for an astonishing USD 9 billion, and Meta is just one company. Other big and small companies, including OpenAI, Google, Amazon, and even Apple, are in the race. What makes NVIDIA GPUs so special? They introduced CUDA (Compute Unified Device Architecture) in 2006. This is a computing platform and programming model that transforms NVIDIA GPUs from serial to parallel computing. 

To explain the difference, simply think of serial computing as a single boat taking limited passengers across a river in one go, whereas parallel computing uses multiple smaller boats to carry passengers simultaneously. This reduces the workload and increases efficiency. This parallel processing, needed to create lifelike graphics, is also ideal for deep learning, which is the backbone of artificial intelligence development. 

Interestingly, NVIDIA doesn’t manufacture all its chips. Instead, it contracts production to chip makers, including the world’s largest chip manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC). However, NVIDIA retains the core technology and design aspects of chip manufacturing. NVIDIA has announced that they are working on generative AI with technology giants like Amazon, Microsoft and Google. They are also partnering with cloud computing companies to make generative AI available to smaller businesses. 

Needless to say, the global focus on AI-related advancements is centred on NVIDIA’s stock. Investors, I would like you to turn your attention to India. We have a company here that has the potential to reach the scale of NVIDIA in the coming years. Netweb Technologies India (NTI) is a rising star in high-end computing, which is emerging as a major player in high-end computing solutions. With comprehensive design and manufacturing capabilities, NTI is making waves in the industry and has the potential to reach the scale of global giants like NVIDIA. 

NTI: Impressive Financials

NTI has achieved its highest-ever quarterly and annual income and profits, showcasing impressive growth. Its operating income grew by 115.5 per cent year-on-year (YoY) for the quarter and 62.7 per cent YoY for the full fiscal year. Its profit after tax (PAT) increased by 181.8 per cent YoY for the quarter and 61.7 per cent YoY for the entire fiscal year. The board of directors recommended a dividend of `2 per share. The EBITDA margin stood at 15.2 per cent for the quarter and 14.2 per cent for the entire fiscal year. 

The company’s return on equity for FY24 was 29.4 per cent, while the return on capital employed was 38.5 per cent. Additionally, its net debt improved significantly to ₹(101.71) crore in FY24 from ₹28.5 crore in FY23, and the cash conversion cycle for FY24 stood at 69 days. In terms of business milestones, NTI got on board 171 new customers in the fiscal year and established a state-of-the-art SMT line expected to be operational soon. The order book increased significantly to ₹411.2 crore for March 2024 from ₹71.2 crore in March 2023. 

The stock has demonstrated remarkable growth, with its price-to-earnings (P/E) ratio increasing, indicating a higher valuation. It has achieved multibagger status within just six months. 

Its future prospects include partnering with NVIDIA for AI servers, launching Intel Sapphire Rapids and AMD Genoabased ‘Make in India’ high-end computing servers, and leveraging India’s potential in Generative AI alongside the global rise of AI. NTI’s AI segment is rapidly expanding, with AI revenue growing 2.6 times year-on-year. The contribution to total revenue increased from 7 per cent in FY23 to 11 per cent in FY24, and AI is expected to contribute 15-16 per cent of the business next year and around 30 per cent within the next 4-5 years. 

NTI is addressing challenges and opportunities in meeting the growing demand for AI infrastructure, with plans to ramp up networking switches sales and develop ORAN solutions. The company is also working on quantum computing, further highlighting its commitment to cutting-edge technology. NTI aims to maintain and improve its margins with a strong growth target of 30-35 per cent compound annual growth rate (CAGR) for the coming years. Fast order cycles allow for swift execution, and the planned capital expenditure (capex) of ₹35-40 crore is expected to support revenue growth to ₹1,800-2,000 crore, with routine maintenance capex at around 10 per cent of its gross revenue. 

NTI has a strong partnership with NVIDIA, spanning 15 years, and has collaborated on various projects, including popularising CUDA for computing. The company maintains an OEM-ODM relationship with NVIDIA for chip design and architecture and has been recognised as NVIDIA’s largest partner in India. NTI focuses on both new and repeat customers to drive revenue, having added 171 new customers in the fiscal year. Repeat business contributes over 70-80 per cent of revenue, and the company is aiming for 30-35 per cent CAGR in revenue. 

The order book and L1 status indicate a high certainty of securing orders, with most of the business coming from central government institutions. NTI is optimistic about future growth, focusing on high-end computing and private cloud solutions. The company is positioning itself to be a key player in the AI sector, addressing challenges and leveraging opportunities in the supercomputing domain. With a strategic approach to business development and a focus on innovation, NTI is set to maintain a competitive edge and achieve substantial growth in the coming years. Keep an eye on this rising star in India’s technology landscape. 

The following graph shows the rapid increase in the share price of the company: 

"2023 has been an incredible year of innovation. We’re inspired to see how customers and developers are already leveraging AI to do things they couldn’t before. I’m excited for the opportunities it will create in 2024.  
-Thomas Kurian, CEO at Google Cloud, 2023 

It’s not just Netweb Technologies India that is making waves. In September 2023, the U.S.-based chipmaker NVIDIA partnered with India’s biggest conglomerates, Reliance Industries and Tata Group. Infosys also teamed up with NVIDIA the same month to develop generative AI solutions aimed at boosting productivity. NVIDIA’s CEO Jensen Huang recently said that India’s IT sector will be the ‘front office’ of the world’s AI revolution. 

In 2023, he mentioned that a trillion dollars worth of global data centre infrastructure will shift from general purpose to accelerated computing in the coming years. This shift is driven by companies worldwide racing to integrate generative AI into every product, service and business process. While working with major technology companies like Amazon, Microsoft and Google, NVIDIA has also been partnering with cloud-computing companies to make generative AI accessible to smaller businesses. 

"This next generation of AI will reshape every software category and every business, including our own. Although this new era promises great opportunity, it demands even greater responsibility from companies like ours."
-Satya Nadella, CEO at Microsoft, 2023 

Conclusion

When we talk about a stock like NVIDIA in India, we are not emphasising its trillion-dollar valuation but rather focusing on a cutting-edge, home-grown AI company that can help millions of Indian businesses ride the AI wave. While it’s easy to get caught up in the AI hype during volatile bull markets, remember that NVIDIA’s current market capitalisation is arguably overvalued and cannot be justified even with healthy cash flows over the next decade. Don’t rush in looking for the next NVIDIA. Rather, look for sustainable growth and innovation in Indian technology companies.