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Used to float NVIDIA (WKN: 918422) in the technology sector under the radar. At that time, GPUs were niche products that attracted mainly graphic designers and ambitious gamers. This has changed tremendously in the last five years.
Today, cloud computing providers like Amazon.com. Microsoft and alphabet huge amounts of data, and GPUs have proven to be very good at handling large amounts of data. This has made NVIDIA a major player in the growing data center market. Over the past year, NVIDIA data center revenues have jumped 89% to $ 2,568 billion and could become the largest segment of the company over time.
At the same time, the game has evolved alongside the rapid growth of the video game industry, which has generated strong demand for NVIDIA's GeForce graphics cards. Despite strong growth in the data center industry, gaming remains NVIDIA's core business, accounting for 57% of the last 12 months.
NVIDIA pulls directly from all pipes. Few years ago, many people suspected that NVIDIA's core graphics processing technology could be used successfully in key non-gaming industries. As a result, the stock has increased by 1,500% during this period. But what about the next five years? Will the business remain dominant or is the time for quick profits over? Let's take a look.
Keep one step ahead of the competition
NVIDIA has not had a lot of competition lately. The main competitor in graphics, Advanced Micro Devices (WKN: 863186), NVIDIA is lagging behind R & D spending, allowing it to move forward significantly. NVIDIA has controlled more than 50% of the GPU market since 2005, with AMD holding the balance.
NVDA research and development costs (last 12 months), YCharts data.
In the data center market, NVIDIA's growth over the past four quarters ranged from 71% to more than 100%. This growth is much faster than AMD's enterprise segment, which includes the sale of its EPYC server processors.
Facebook, alphabet and Amazon Use deep learning and inference technology to badyze all the data stored on their respective cloud servers and make proactive suggestions to users, such as: For example, recognizing faces on photos or recognizing voice. Although processors remain necessary in data centers, more and more expenses have been transferred to GPUs. A processor can handle only sequential processing tasks, while the graphics processor can process multiple streams simultaneously. This makes the GPU a much better option for tech giants, which of course NVIDIA plays in the cards.
NVIDIA also excels in the self-driving market with its DRIVE car computer, powerful enough to run a fully autonomous vehicle the size of a license plate. The graphic specialist has over 370 partnerships with various automakers and software companies, including leading commercial vehicle suppliers. PACCAR. ZF and Bosch,
Potential problems
As far as equities are concerned, NVIDIA is trading at a price / earnings ratio of 34, which is not that expensive given the recent growth of 40% in sales and 90% in profitability. However, there are some issues that could hinder NVIDIA's growth over the next five years.
The main competitor of the video game industry, AMD, NVIDIA is still on the heels. AMD is currently considering launching its 7-nanometer graphics processor over the next year, which will compete with NVIDIA's new Turing graphics cards.
In addition, we are allowed Intel Do not forget, who is supposedly working to bring its own graphics processor to market by 2020. This certainly creates uncertainty, especially if Intel is able to develop a powerful graphics chip that works very efficiently with its processors. This could lead to a very competitive data center market, not to mention gaming.
In addition to gaming and data center applications, the best deal for NVIDIA stand-alone cars could be where the company competes with Intel Mobileye and Alphabet technologies. We do not know what Apple because the company has already carried out autonomous road tests. It is possible that other companies are also developing new technologies better suited than stand-alone graphics processors. So You're here For example, NVIDIA's DRIVE PX system was abandoned for its own chip, which according to Tesla CEO Elon Musk was 10 times faster than NVIDIA technology.
Expand the possibilities
It is wise for investors to be aware of these risks, but NVIDIA continues to find new markets for the use of its GPU technology, such as: Medical Imaging ($ 100 billion industry), Robotics and Internet of Things (IoT) ).
NVIDIA's management estimates that all of the markets for addressable datacenters, automotive, robotics, IoT, and medical imaging totals more than $ 75 billion. dollars. This does not include the gaming sector, which grew 52% from one year to the next in the second quarter.
With the company still finding new applications for its core GPU technology, it's very difficult to know exactly what the NVIDIA growth opportunity represents. In 2013, IBM estimated that 90% of global data had been generated in recent years, just to give you an idea of how fast data is growing. This development represents a great opportunity for NVIDIA, hard to measure in my opinion.
Despite the stock price and market capitalization of $ 160 billion, I would not be surprised if NVIDIA reaches new heights in five years.
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John Mackey, CEO of Whole Foods Market, an affiliate of Amazon, is a board member of The Motley Fool. Suzanne Frey is an executive member of Alphabet and a board member of The Motley Fool. Teresa Kersten is a LinkedIn Partner and Board Member of The Motley Fool. LinkedIn is owned by Microsoft.
The Motley Fool owns and recommends Alphabet (A and C Shares), Amazon, Apple, Facebook, Nvidia and Tesla. The Motley Fool owns shares of Paccar and offers the following options: Long January 2020 Calls USD 150 on Apple and Short January 2020 155 USD Calls on Apple.
This article was written in English by John Ballard and published on Fool.com on October 16, 1818. It has been translated so that our German readers can participate in the discussion.
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