One of the great appeals of investing is the potential to build a portfolio that generates passive income. For many UK investors, the default route has often been dividend-rich FTSE 100 shares in industries such as banking, energy, or consumer goods.
Yet across the Atlantic, some of the most exciting opportunities for future passive income could come from the US technology sector — even if many of its biggest names don’t yet pay meaningful dividends.
There’s a simple reason for this. Today’s growth engines can become tomorrow’s income giants. Tech companies that are currently reinvesting heavily in research, product development, and expansion may one day reach a stage where growth opportunities slow.
When this happens, it allows management to return excess cash to shareholders. Investors patient enough to hold through these transitions could be rewarded handsomely.
Today’s winner: Nvidia
Take Nvidia (NASDAQ:NVDA). At present, it’s a real tech winner and a classic example of a company reinvesting nearly everything back into growth.
Originally known for its graphics processing units (GPUs) for gaming, it’s repeatedly reinvented itself, becoming a leader in artificial intelligence (AI), data centres, and autonomous driving technologies.
The firm’s chips now power AI models used by businesses across the globe, and its revenues have soared as demand for high-performance computing has exploded.
Right now, every dollar Nvidia earns seems to have a high-return destination, whether that’s building more efficient AI accelerators, expanding software ecosystems, or strengthening supply chains. As such, it’s logical that just 1.2% of net earnings is distributed to shareholders as dividends.
Growth comes first. But what’s remarkable is how Nvidia continues to position itself at the forefront of the next technological revolution. In the medium term, this could mean being at the cutting edge of robotics.
Moving to dividends
This path has precedent. Pfizer, now one of the world’s most dependable dividend payers, wasn’t always so. Four decades ago, it was still in its aggressive expansion phase, pouring resources into research and development to build a world-class pharmaceuticals pipeline.
However, as Pfizer matured, its products became entrenched in global healthcare and its earnings power expanded well beyond reinvestment needs. Today, it pays a dividend yield of more than 7%. That’s up from around 1.5% 30 years ago.
Pfizer’s journey shows how companies can transition from high-growth stories into income-producing powerhouses.
Could Nvidia follow a similar path?
Right now, Nvidia seems so central to the technological revolution that continued reinvestment of earnings seems logical. I also expect it to lead the next tranche of technological advancements in the 2030s, including robotics and quantum computing.
However, over the very long run, as its technology becomes more entrenched across industries and growth rates normalise, reinvestment may no longer require every spare dollar. At that point, dividend payments could become a natural way of rewarding long-term shareholders.
So is Nvidia worth looking at for passive income? Well, investors may have to wait a while. However, it’s certainly a stock worthy of consideration. It’s central to my portfolio.
