Nvidia’s incredible growth has been fueled by 3 crucial but overlooked factors

In the run-up to the most hyped quarterly earnings announcement in years—Nvidia’s, of course—it’s hard to believe that anything relevant was left unsaid. But in fact, three crucial elements of Nvidia’s story have been underplayed or ignored. Without understanding them, the company’s future picture is hopeless.

Believe it or not, Nvidia’s profitability is more astounding than you think

The company’s profit for the second quarter was 168% higher than its profit in the same quarter last year. If Nividia just made the same profit for the remaining two quarters of the year, it would be the fourth most profitable company in the Fortune 500 (behind only Apple, Berkshire Hathaway, Alphabet and Microsoft). But Wall Street analysts expect Nvidia’s profits to continue to grow strongly this year — and on average, analysts have underestimated Nvidia’s performance so far.

Even more impressive is Nvidia’s profitability on several measures. We have long preferred measures based on economic profit, also known as economic value added (EVA), which remove distortions in standard accounting. Institutional Shareholder Services calculates EVA data for 21,000 publicly traded companies worldwide and reports that Nvidia’s return on equity and its upward trend places it in the top 100.^th percentile for profitability. That doesn’t mean Nvidia is in the top percentile (which would be 99^th percentile). It means that Nvidia ranks above all of the other 21,000 companies, or possibly has ties to some of them.

It is simply phenomenal. When Nvidia’s profit growth slows, as it eventually will, the company could still rank 95th.^th percentile—or heck, even in that shabby 85th^th percentiles—and remain an outstanding financial performer.

CEO Jensen Huang’s early life was tougher than you might know, and it helps explain his successful leadership

Huang made headlines in March when he spoke to students at his alma mater, Stanford University. “Greatness is not intelligence,” he told them. “Greatness comes from character, and character is not made of smart people. It is made up of people who have suffered.”

He didn’t go into much personal detail at that event, though he often mentioned that he was a dishwasher at Denny’s, “and then they promoted me to busboy.” But he was much more open about his formative years when he spoke to wealth 23 years ago:

In 1973, 9-year-old Huang was living in Thailand with his Chinese parents. Worried about the political situation there, his parents decided to send him to a boarding school in the US that his uncle had found in a magazine ad. Before long, Huang was enrolled at Oneida Baptist Institute in Oneida, Ky. … It turned out that the institute was a school for problem children. Huang’s 17-year-old roommate was fresh out of prison and covered in stab wounds. Huang says that during his two years at school he was beaten a lot and spent his afternoons cleaning the latrine. However, he considers those days as a valuable experience. “Now I don’t get scared often. I don’t worry about going places I haven’t been before,” says Huang, “and I can tolerate a lot of discomfort.”

The story continues

Suffering remains central to Huang’s leadership. “To this day I use the phrase ‘pain and suffering’ within our company with great joy,” he told the Stanford students. “You want to refine the character of your company. You want greatness from them.”

Huang will wait years for his convictions to be served

CEOs often complain that Wall Street won’t let them commit to long-term projects that will only generate profits in the future. Huang insisted on continuing such projects anyway. Investors should know that Nvidia’s history is one of spending years creating technology for which there is no market until the technology creates a market.

Nvidia’s first project was designing chips to create 3D graphics for video games when video games barely existed. Ultimately, the chips turbocharged the gaming industry and made Nvidia successful. Huang and his partners knew that the same technology could do much more, including powering a new way of computing that became AI. But “for 10, 15 years, the markets that power Nvidia today just didn’t exist,” Huang says. “All your shareholders, your board, your partners — you take them all with you, and there’s no evidence of a market. It’s really, really challenging.”

Huang’s experience is a warning to Nvidia investors that a day after today’s AI frenzy, there may come a time when they need to be patient. It is also an inspiration to business leaders that pain and suffering will pay dividends and that persistence and faith can pay off, sometimes spectacularly.

This story was originally featured on Fortune.com