1 Warren Buffett Quote That Makes Me Excited to Buy Nvidia Stock

Key Points

• Some businesses are set up to succeed regardless of their leadership.

• Booming chipmaker Nvidia has become that type of business.

• It has strengths in both the hardware and software side of its industry.

• 10 stocks we like better than Nvidia ›

In his 1982 annual letter to Berkshire Hathaway shareholders, Warren Buffett delivered a piece of wisdom that investors are still talking about today. "When a management with a reputation for brilliance tackles a business with a reputation for bad economics," he wrote, "it is the reputation of the business that remains intact."

The lesson here for investors is simple: Find businesses that are so good that even a weak management team can't mess them up. And there's one hot growth stock today that fits that description perfectly.

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Buffett likely has great respect for Nvidia's business model

When I think of businesses with great economics, it's hard not to think of Nvidia (NASDAQ: NVDA). And while Buffett has largely avoided high-growth tech stocks over the decades due to his well-known preference for investing in companies he understands, he likely has a ton of respect for the company's business model.

Many investors think of Nvidia as a hardware company. Indeed, it's the world's leading designer of GPUs -- critical hardware that makes a host of other technologies like machine learning and artificial intelligence possible. But Nvidia's margins are somehow twice those of competitors such as Intel and Advanced Micro Devices. How? Because Nvidia also controls the software side of things through its CUDA developer platform, which is used to program and optimize GPUs for specific tasks.

Source: Getty Images

Because it controls both the software and hardware sides of the equation -- and because the widely used CUDA platform is only compatible with Nvidia's chips -- it's much more difficult for its customers to switch to competing hardware. The friction costs are often simply too high.

This approach may have been put into place by savvy management. But now that Nvidia is in this position, it's hard not to envision the company maintaining its dominant market share and high gross margins for years. It's now a business that, even with weaker management, can still thrive. That's exactly the type of business Buffett recommends buying.

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: short August 2025 $24 calls on Intel. The Motley Fool has a disclosure policy.