This stock has been moving in tandem with Nvidia. How deep do the parallels run?

Interestingly, in India, another stock has been following a trajectory similar to Nvidia: Netweb Technologies. Both Nvidia and Netweb have tripled investor wealth over the one and a half years leading up to 2024. Both companies have seen a significant correction this year, amid upheavals in the global AI landscape.

Do Netweb and Nvidia share similarities in their businesses?

Nvidia's business model is deeply entrenched in the AI space. GPUs manufactured by Nvidia are the primary hardware required to train an AI model today. Nvidia has an OEM partnership with Netweb for the design and development of AI GPU systems based on Nvidia's Blackwell platform. So, their businesses do share common ground—GPU development.

The businesses also share some of the same challenges. A few days back, China caused a major disruption in the AI space with its low-cost yet efficient AI model DeepSeek. Considering that DeepSeek did what ChatGPT had done, but using only a fraction of the GPUs used by ChatGPT, both Nvidia and Netweb stocks saw significant correction.

Also Read: Mint Primer | DeepSeek: A Chinese marvel or OpenAI copy?

In response, management of both businesses released statements spinning the development into a positive for their businesses. Both of them highlighted how DeepSeek’s inference algorithm still requires a lot of GPUs, and both of them alluded to the Jevon’s paradox–when technological advancement (like what DeepSeek pulled off) makes a resource (like GPUs) more efficient, it ironically leads to more adoption of the resource. So, they expect the adoption of GPUs to pick up further pace, thanks to DeepSeek (rather than the other way around).

How deep the parallels run

Even as Netweb Technologies is involved in developing AI GPU systems in partnership with Nvidia, the latter operates on a much larger scale. Nvidia reported a topline of more than $35 billion in its latest earnings report, while Netweb posted operating income of ₹334 crore in the quarter ended December 2024. This is reflective of the somewhat obvious fact that Nvidia is the market leader in AI, while Netweb is a nascent player in the space.

However, apart from scale, there are deeper differences in their businesses. Be it their “hero product", client-profiles, application-industries, or global acceptance of products and services, Netweb and Nvidia are playing very different games.

To start with, Netweb derives only 15% of its revenues from AI. Majority of Netweb’s revenue comes from other technological offerings, including high performance computing (HPC) and private cloud and hyper converged infrastructure (HCI).

This limited contribution of AI also explains the differences between the client profiles of Nvidia and Netweb. While Nvidia derives a huge chunk of its revenues from tech giants such as Microsoft, Meta, Amazon, Alphabet, Oracle and Tesla, 60% of Netweb’s revenue comes from the Indian government.

In fact, almost a third of Netweb’s revenues is derived from the education and research industry (IITs, CDAC, etc.) while the technology sector contributes only 25%. Finally, unlike Nvidia where global acceptance of its product has enabled 56% export-contribution to revenues, exports are responsible for only 9% of Netweb’s revenues.

Also Read: What explains TCS, Wipro, Infosys, TechM flocking to Nvidia

Netweb's unique challenges

Going by the distinctly different business dynamics and client-profiles of Netweb versus Nvidia, AI disruption will not likely make it to the top of the list of Netweb’s worries. Netweb has its own unique set of challenges to grapple with.

Firstly, as is typical with companies catering to the government, liquidity management is tricky for Netweb. Thanks to the near 100 days taken to receive cash for goods and services sold, Netweb’s cash-conversion cycle was 88 days in Q3FY25, and has even extended to as many as 100 days in the past.

Secondly, Netweb faces a risk from excessive customer concentration, as its top five customers contribute more than 60% to its revenues. Worryingly, this situation has exacerbated in the last few years.

Back in FY22, the top five customers contributed less than 40% to Netweb's revenues. High customer concentration risk typically manifests as reducing bargaining power with customers, as is evident in Netweb’s falling profit margin—its operating profit margin has fallen from 14.2% in FY24 to 13.2% in Q3FY25, while its bottom line has reduced from 10.3% to 9.0% during the period.

Thirdly, the acquisition of new customers has been slow. With less than 10% customer accretion CAGR since FY20, 85% of Netweb’s business in Q3FY25 came from old customers. Of course, this can also be spun as stickiness of customers, as is evident from the average age (time with Netweb) of 5.2 years for its top 10 customers.

Finally, Netweb’s financial strengths lie in its high promoter shareholding of 71.4% and its low debt–less than ₹18 crore gross debt. Finance costs account for less than 0.5% of its operating revenues. Of the ₹200 crore that Netweb raised from the fresh issue of shares during its IPO, only about ₹20 crore remains as of December 2024.

Further expansion to fuel growth will need to be funded by either equity dilution, which would reduce promoter shareholding, or from debt, which would raise finance costs and stress Netweb’s bottom line.

Also Read: AI exports bigger opportunity for India than chips, says Nvidia’s Huang

Netweb’s future and AI

Despite the small contribution of AI to Netweb’s revenues (15%) currently, the growth in revenues from AI has been exponential – clocking more than 70% CAGR growth since FY22. AI’s contribution to Netweb’s revenues has grown from ₹24 crore in FY22 to more than ₹100 crore in the nine months ended December 2024.

Of course, this exponential growth has come on the back of a very low base. But Nvidia CEO’s personal endorsement of Netweb’s AI GPU systems at the Nvidia AI Summit India 2024, lends immense credibility to the progress made by Netweb in AI.

As a storm cooks up in the world of AI with US’ protectionist approach to GPU exports, development of Stargate data-centres under Trump’s presidency, and China’s disruption with DeepSeek amid a geopolitical inclination away from China, it is the perfect time for India to catch up in the AI race. Taking a leaf out of DeepSeek’s low-cost success could help India sidestep the US’ curbs on chip exports and capture the fast-expanding AI market.

The Indian government had allocated more than ₹10,000 crore for the IndiaAI mission in 2024, and followed it up with a ₹500 crore outlay in the latest budget towards the Centre for Excellence in AI. And given Netweb’s partnerships and track record in AI, it is well-positioned to capitalize on the government support and make the most of the latest developments in the ever-evolving AI space.

For more such analyses head to Profit Pulse.

Note: The objective of this article is to share insightful charts, data points, and thought-provoking opinions. It is NOT a recommendation to buy or sell any stocks. If you are considering an investment, please consult a professional financial advisor. This article is intended solely for educational purposes.

Ananya Roy is the founder of Credibull Capital, a SEBI-registered investment adviser. X: @ananyaroycfa

Views are personal and do not represent the stand of this publication.

Also Read: Compete or Die: Netweb Technologies joins the artificial intelligence race