NVIDIA Corp. (NASDAQ:NVDA)

The analysis reveals a significant evolution in economic profit over the observed period. Initially, the entity experienced an economic loss, which transitioned to positive economic profit and subsequently demonstrated substantial growth. This progression is closely linked to changes in net operating profit after taxes, cost of capital, and invested capital.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited considerable volatility. A substantial increase occurred between 2020 and 2022, peaking at US$9,602 million. A significant decline followed in 2023 to US$2,334 million, before experiencing exponential growth in 2024 and 2025, reaching US$68,707 million. This pattern suggests a fluctuating operational performance with a recent period of exceptionally strong profitability.

Cost of Capital

The cost of capital remained relatively stable throughout the period, fluctuating within a narrow range of 25.85% to 26.37%. This consistency indicates a stable risk profile and financing structure for the entity. The slight upward trend towards the end of the period may reflect broader macroeconomic conditions or changes in the entity’s capital structure.

Invested Capital

Invested capital demonstrated a consistent upward trend, increasing from US$14,224 million in 2020 to US$47,433 million in 2025. This growth suggests ongoing investment in operations and expansion. The rate of increase accelerated in later years, aligning with the substantial growth in NOPAT.

Economic Profit

Economic profit initially registered as a loss of US$-920 million in 2020. It turned positive in 2021, reaching US$1,004 million, and continued to grow to US$4,903 million in 2022. A reversal occurred in 2023, resulting in a loss of US$-3,226 million, before a dramatic increase to US$19,629 million in 2024 and US$56,197 million in 2025. The economic profit trajectory closely mirrors the fluctuations in NOPAT, indicating that operational profitability is the primary driver of economic value creation. The substantial gains in 2024 and 2025 suggest a significant improvement in the entity’s ability to generate returns exceeding its cost of capital.

In summary, the entity’s economic performance has undergone a substantial transformation. While initial periods were characterized by economic losses, recent years have witnessed significant economic profit generation, driven by substantial increases in NOPAT and continued investment in capital. The consistent cost of capital suggests a stable financial foundation supporting this growth.

The financial data reveals significant fluctuations and overall growth in key profitability metrics over the observed periods.

Net Income

The net income shows a general upward trend from January 26, 2020, to January 26, 2025, starting at $2,796 million and increasing markedly to $72,880 million. A notable surge occurs between January 29, 2023 ($4,368 million) and January 28, 2024 ($29,760 million), followed by a further sharp increase to $72,880 million in the subsequent period. Despite a dip after January 30, 2022 ($9,752 million) down to $4,368 million by January 29, 2023, the overall trajectory is strongly positive.

Net Operating Profit After Taxes (NOPAT)

NOPAT values follow a similar pattern to net income, starting at $2,792 million in January 26, 2020 and increasing substantially by January 26, 2025 to $68,707 million. This metric also exhibits a decline from $9,602 million in January 30, 2022 to $2,334 million in January 29, 2023, before recovering dramatically to $27,819 million in January 28, 2024 and continuing to grow significantly in the final period.

Overall, the data indicates periods of volatility around early 2023, with decreases in profitability metrics, followed by a strong recovery and exceptional growth leading into 2024 and 2025. This suggests that while the company experienced some operational and financial challenges in the mid-period, it managed to capitalize on conditions or strategic initiatives leading to a substantial increase in profitability towards the end of the analysis window.

Income tax expense (benefit)

Over the analyzed periods, the income tax expense exhibits a volatile trend. Initially, it decreased from 174 million US dollars in early 2020 to 77 million in early 2021, followed by an increase to 189 million in early 2022. The figure then shifted to a negative value (-187 million) in early 2023, indicating a tax benefit during that year. Subsequently, there was a sharp and substantial increase to 4,058 million in early 2024, which further escalated to 11,146 million in early 2025, reflecting significantly rising tax expenses in the most recent years.

Cash operating taxes

Cash operating taxes demonstrate a consistent and pronounced upward trend throughout the period. Starting at 134 million US dollars in early 2020, the cash taxes increased steadily each year, reaching 390 million in 2021, 643 million in 2022, and 1,983 million in 2023. The upward trajectory accelerates substantially in the final years analyzed, with cash operating taxes rising to 6,430 million in early 2024 and then more than doubling to 15,316 million by early 2025. This indicates a growing cash tax outflow from operations over the years under review.

Total Reported Debt & Leases

The total reported debt and leases demonstrated a marked increase from 2,643 million USD in early 2020 to a peak of 12,031 million USD by early 2023, reflecting a significant rise in financial obligations over this period. Subsequently, a downward trend is observed, with the amount decreasing to 11,056 million USD in early 2024 and further to 10,270 million USD by early 2025. Despite this recent reduction, the debt level remains substantially elevated compared to the 2020 baseline.

Shareholders’ Equity

Shareholders’ equity exhibited strong and consistent growth throughout the timeframe. Starting at 12,204 million USD in early 2020, it increased to 16,893 million USD by early 2021, followed by a substantial surge to 26,612 million USD in early 2022. While a slight decline occurred in early 2023, falling to 22,101 million USD, equity then rose sharply to 42,978 million USD in 2024 and reached an impressive 79,327 million USD by early 2025. This upward trajectory indicates a significant accumulation of net assets and possibly improved retained earnings or capital inflows.

Invested Capital

Invested capital showed fluctuation early in the period, declining from 14,224 million USD in early 2020 to 13,232 million USD in early 2021 before ascending steadily to 18,075 million USD in early 2022. This growth continued, reaching 21,396 million USD in early 2023, followed by a notable increase to 31,144 million USD in 2024. The trend culminated with a substantial rise to 47,433 million USD by early 2025. This progression implies increased investment in operational assets or expansion activities over time.

Summary

Overall, the data reveal a strategy characterized by elevated leveraging during the initial years, followed by gradual deleveraging beginning in 2023. Concurrently, both shareholders’ equity and invested capital have grown robustly, with equity growth outpacing that of debt, indicating strengthening financial stability and capital base. The significant rise in invested capital aligns with the reported equity increase, suggesting sustained investment in growth and asset development. These patterns collectively point to an expansion phase supported by increased capital investments alongside active management of debt levels.

The economic spread ratio demonstrates a significant and volatile trend over the observed period. Initially negative, the ratio experienced substantial fluctuations, culminating in a marked increase in recent years. This analysis details the observed patterns in economic profit, invested capital, and the resulting economic spread ratio.

Economic Spread Ratio

In 2020, the economic spread ratio was -6.47%, indicating that the company’s return on invested capital was less than its cost of capital. A substantial positive shift occurred in 2021, with the ratio rising to 7.59%, suggesting the company began generating returns exceeding its cost of capital. This positive trend continued through 2022, reaching a peak of 27.12%. However, the ratio experienced a sharp decline in 2023, falling to -15.08%, indicating a return to a position where returns were insufficient to cover the cost of capital.

The period from 2023 to 2025 shows a dramatic recovery and acceleration. The ratio increased significantly to 63.03% in 2024 and further to 118.48% in 2025. This represents a substantial improvement in the company’s ability to generate value from its invested capital.

Economic Profit

Economic profit mirrored the volatility observed in the economic spread ratio. A loss of US$920 million was recorded in 2020, followed by a profit of US$1,004 million in 2021. Profitability continued to increase, reaching US$4,903 million in 2022, before declining to a loss of US$3,226 million in 2023. The subsequent years saw substantial profit growth, with figures of US$19,629 million in 2024 and US$56,197 million in 2025.

Invested Capital

Invested capital generally increased throughout the period. From US$14,224 million in 2020, it decreased slightly to US$13,232 million in 2021, then increased steadily to US$18,075 million in 2022, US$21,396 million in 2023, US$31,144 million in 2024, and US$47,433 million in 2025. The increasing invested capital base, coupled with the fluctuating economic profit, significantly influenced the economic spread ratio.

The substantial increase in the economic spread ratio in the later years suggests improved efficiency in capital allocation and a stronger ability to generate returns above the cost of capital. The earlier volatility highlights periods where the cost of capital exceeded returns, requiring further investigation into the underlying drivers of profitability and capital efficiency.

The economic profit margin demonstrates a significant fluctuation over the observed period. Initially negative, it experienced substantial growth before declining again, ultimately culminating in a strong positive trend. A detailed examination of the progression reveals key insights into the company’s financial performance.

Economic Profit Margin Trend

In 2020, the economic profit margin was negative at -8.38%. This indicates that the company’s economic profit was less than zero, meaning the return generated was insufficient to cover the cost of capital employed. A substantial improvement occurred in 2021, with the margin rising to 5.93%, signifying a positive economic profit. This positive trend continued into 2022, with the margin reaching a high of 18.18%, demonstrating a considerable increase in value creation.

However, 2023 saw a reversal, with the economic profit margin declining to -11.93%, representing a return to negative economic profit. This downturn suggests a potential increase in the cost of capital or a decrease in operational efficiency. The subsequent years, 2024 and 2025, exhibited a strong recovery. The margin increased dramatically to 31.82% in 2024 and further to 42.91% in 2025, indicating a substantial improvement in the company’s ability to generate returns exceeding its cost of capital.

The economic profit margin’s trajectory closely mirrors the changes in economic profit and adjusted revenue. The negative margins in 2020 and 2023 coincide with periods of lower or negative economic profit. Conversely, the substantial increases in margin in 2022, 2024, and 2025 align with significant growth in both economic profit and adjusted revenue. The accelerating growth in the economic profit margin in the later years suggests increasing efficiency in capital allocation and a strengthening competitive position.

Relationship to Revenue

The adjusted revenue figures show a consistent upward trend throughout the period, with particularly strong growth in 2024 and 2025. The economic profit margin’s responsiveness to revenue changes suggests a strong correlation between sales performance and the company’s ability to generate economic profit. The substantial revenue increase in 2025, coupled with a further increase in the economic profit margin, indicates that the company is effectively leveraging its revenue growth to enhance profitability.

Overall, the economic profit margin demonstrates a volatile but ultimately positive trend. While experiencing periods of negative economic profit, the company has demonstrated a capacity for significant improvement, culminating in a strong and increasing margin in the most recent periods observed.