Moody's lifts NVIDIA stock rating to Aa2, maintains positive outlook

Investing.com -- On Wednesday, Moody's Ratings announced an upgrade to NVIDIA Corporation's (NASDAQ:NVDA) senior unsecured rating, elevating it to Aa2 from Aa3. Alongside this upgrade, Moody's affirmed NVIDIA's Prime-1 short term commercial paper rating and sustained the positive outlook on the company's ratings.

The upgrade is attributed to NVIDIA's leading position in the artificial intelligence (AI) infrastructure sector, its strong prospects for long-term growth, and an impressive financial profile. NVIDIA's commitment to research and development, with an annualized run-rate of about $15 billion for the fiscal fourth quarter of 2025, is recognized as a key differentiator for its accelerated computing platform, which encompasses hardware systems, networking, and software technologies.

NVIDIA's revenue and free cash flow are projected to exceed $200 billion and $90 billion, respectively, by the end of its fiscal year in January 2026. With $43.2 billion in cash and investments and a relatively low debt level of $8.5 billion, NVIDIA's financial health appears robust. The company's innovative strides in AI, particularly in Large Language Models (LLMs) with reasoning capabilities, are expected to drive demand for substantial data center capacity.

Despite NVIDIA's strong market position, Moody's notes that geopolitical risks present significant challenges. Export controls in the U.S. have affected NVIDIA's revenue growth in China, although high product demand has mitigated some of the negative impact. Additionally, the concentration of NVIDIA's supply chain in Taiwan poses risks amid geopolitical tensions, although the company plans to diversify its supply sources over time.

NVIDIA's revenue is also subject to volatility due to its reliance on a few large cloud service providers, which historically account for nearly half of its Data Center end market revenues. The growth of AI infrastructure spending could be hindered by various factors, including the uncertain return on large AI investments and electricity supply constraints for AI data centers.

The positive outlook from Moody's reflects the expectation that NVIDIA will maintain strong earnings growth and further strengthen its cash position relative to debt. Future upgrades could occur if demand for accelerated computing platforms remains robust and NVIDIA's financial profile continues to improve. Conversely, a downgrade could be considered if there is a prolonged weakening in demand for AI infrastructure or if a shift in financial policy significantly erodes NVIDIA's cash position or leads to a substantial increase in debt.