The Return-on-Capital Question Looming Over NVIDIA Corporation’s (NVDA) AI Investments

The Return-on-Capital Question Looming Over NVIDIA Corporation’s (NVDA) AI Investments

Thu, September 17, 2026 at 2:48 PM GMT+3 4 min read

• NVDA +2.00%
• ^GSPC +0.95%

Hayden Capital, an investment management firm, released its second-quarter 2026 investment letter. The letter can be downloaded here. In the second quarter, the portfolio gained 6.9%, compared to the S&P 500's 15.2%. Overall, approximately 34% of the portfolio is in Asia, 43% in North America, and the rest spread across other regions. Hayden Capital remains guided by a strategy focused on high-quality franchises with stable earnings power, continuing to invest despite this year's challenging results. Their largest investments are experiencing over 40% revenue growth yet are trading at similar valuations to the broader market, indicating potential for future outperformance. The recent market corrections in AI investments have prompted a healthier perspective among investors, emphasizing the importance of strong business fundamentals. Companies are leaning towards partnerships with AI firms rather than outright replacements, ensuring better access to data and operational efficiency. Six months into the "SaaS-pocalypse," software incumbents remain resilient despite initial fears of disruption. While AI is indeed transformative, the anticipated rapid changes in markets have not materialized as quickly as expected. Also, check the fund's top five holdings to see its best picks in 2026.

In its second-quarter 2026 investor letter, Hayden Capital highlighted NVIDIA Corporation (NASDAQ:NVDA). NVIDIA Corporation (NASDAQ:NVDA) is a leading data center-scale AI infrastructure company operating through Compute & Networking and Graphics segments. On September 16, 2026, NVIDIA Corporation (NASDAQ:NVDA) closed at $213.90 per share. Over the past month, NVIDIA Corporation (NASDAQ:NVDA) declined 1.36%, but its shares are up 21.37% over the past year. NVIDIA Corporation (NASDAQ:NVDA) has a market capitalization of $5.15 trillion, and its stock has traded within a 52-week range of $164.27 to $236.54.

Hayden Capital stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2026 investor letter:

"Answering that requires clarity on the second variable – the incremental return on invested capital. It's why the narrative around hyperscalers (and thus their stock prices) have swung around the past year, and why no one is confident in the answer. The downstream beneficiaries – the semi component makers – are even more exposed. If these companies are reinvesting 100% of their cash flows at 50% ROICs, that's fantastic. Earnings should compound at that rate, and the shares look cheap at today's prices. The irony is that for companies deploying AI into their own operations, better returns require the opposite of scarcity. They need token prices to fall – or model capabilities to improve enough that the output finally justifies the spend. And falling token prices require supply to increase, which is already starting to happen (see the recent announcements from SK Hynix, Samsung, and CXMT). What happens when that supply arrives just as resale premiums compress, and the speculative bid goes with it? Without confidence in that, you can't calculate a sustainable ROIC. You can't rely on scarcity pricing if there's a growing chance that scarcity ends. After all, the fundamental support price should be whatever return end-users can generate by embedding AI into their own businesses, less a margin for the provider. But it's too early to calculate that number with any precision.

And interestingly, the market seems to be asking the same thing. For example, NVIDIA Corporation (NASDAQ:NVDA) is undoubtedly one of the most important companies in the middle of this AI buildout boom. And yet despite expecting to grow earnings ~+89% y/y this year, its P/E multiple is below consumer staples companies barely growing above GDP2. I suspect the market is wrong one way or the other – either multiples need to rise as earnings prove durable, or earnings growth estimates need to come down. In the end, it's about predictability / sustainability of earnings, not what's happening today – since over 90% of a company's value lies in the earnings stream 5+ years out. The market's just saying it doesn't know what profits look like several years in the future…" (Click here to read the full text)

NVIDIA Corporation (NASDAQ:NVDA) is in fourth position on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 285 hedge fund portfolios held NVIDIA Corporation (NASDAQ:NVDA) at the end of the second quarter, up from 275 in the previous quarter. While we acknowledge the potential of NVIDIA Corporation (NASDAQ:NVDA) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we discussed NVIDIA Corporation's (NASDAQ:NVDA) plan to invests a $10 Billion stake in Anthropic's $2 Trillion IPO. In addition, please check out our hedge fund investor letters Q2 2026 page for more investor letters from hedge funds and other leading investors.

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This article is originally published at Insider Monkey.