NVIDIA’s Hidden AI Play: The Truth Behind Its WeRide Investment

Key Points

• Shares of WeRide are up over 70% in a single day as a stake from NVIDIA is announced, though it may not be what it seems on the surface.
• Implications for the future favor NVIDIA's earnings, as a boost in valuation and demand for chips can be assumed.
• Wall Street analysts and the broader market are still prepared for a potential NVIDIA earnings beat.

The market’s memory is still fresh when it comes to the volatility induced by the NVIDIA Co. NASDAQ: NVDA flash sell-off that came from the DeepSeek debacle in China. However, the relationship between NVIDIA and China goes well beyond that recent incident. What investors may or may not know is that this connection goes back over eight years.

That’s right, since 2017, according to an initial public offering (IPO) prospectus, NVIDIA has been a partner with another Chinese company, WeRide Inc. NASDAQ: WRD, which focuses on the automotive sector with a particular interest in autonomous driving and logistics. Whether this relationship has anything to do with today’s chipmaking rivalry between the United States and China is up for debate. However, there are other angles that can be taken from this relationship.

For example, China is leading the way in global electric vehicle demand, which, according to the latest research done by Albemarle Co. NYSE: ALB, now represents up to 60%. With this in mind, the partnership between NVIDIA and WeRide can be taken as a potential backdoor strategy to supply China with the chips it needs to make autonomous driving a reality.

Not a Recent Collaboration

While WeRide stock surged over 63% in a single day following the news, NVIDIA’s investment in the company wasn’t recent. The stock is up so much because, as WeRide has just gone public in the fourth quarter of 2024, the information behind NVIDIA’s holdings is now becoming mainstream.

This might have been taken as a misrepresentation of a recent purchase. However, it merits some bullishness in WeRide nonetheless since one of America’s largest companies in the technology sector should have a very strong reason to partner with WeRide in the first place.

According to WeRide's IPO prospectus, this investment involves NVIDIA providing the graphic processing units (GPUs) needed for WeRide to develop its autonomous driving and logistics fleet according to its demand and needs projections. In return, NVIDIA would share in the success by being an equity stakeholder.

Now, most of these shares held by NVIDIA in WeRide are still in what’s called a “lock-up period,” meaning that NVIDIA cannot dispose of them until the period ends, considering they were pre-IPO shares. With this in mind, there are a few things to consider moving forward for NVIDIA shareholders and for those feeling like they’re missing out on WeRide.

The Market’s Take on News

What investors need to focus on now is the impact that this sudden spike in valuation for WeRide might have on NVIDIA, especially as the company is getting ready to report its latest quarterly earnings results. First is the fact that over $4 billion in market capitalization has been created for NVIDIA’s balance sheet.

Second, the stock's potential to keep moving higher would only add more value to NVIDIA. According to accounting standards, this could be taken as “Other income” if NVIDIA chooses to report this increase in valuation from equity holdings that way, meaning that earnings per share (EPS) could come out better than expected.

This is, of course, why the stock was up over 1.7% the same day WeRide spiked and why the market is still willing to pay such massive premiums for NVIDIA. Not only does NVIDIA trade at 90% of its 52-week high today, but the market is willing to pay a 32.7x forward price-to-earnings (P/E) valuation for it.

Compared to peers like ASML Holding NASDAQ: ASML, which trades at only 23.8x forward P/E, this premium shows investors the market’s willingness to overpay for NVIDIA’s future earnings. When the market shows this high level of conviction, investors would be best served by not fighting against it.

More than that, some Wall Street analysts, such as those from Tigress Financial, have reiterated their bullish outlook for NVIDIA ahead of its earnings announcement. These analysts not only kept a Strong Buy rating on NVIDIA stock but also placed a $220 per share valuation on the company, which calls for up to 60.3% upside from today’s price.

Ultimately, what matters is whether the market will be right to pay such a high premium for NVIDIA’s future earnings. Considering Wall Street earnings per share (EPS) forecasts for the second quarter of 2025, which land at $3.28, a fourfold increase in the stock’s EPS indeed seems to justify today’s premiums, which are only expanded by this boost in WeRide’s valuations.