Factors Driving Growth For Nvidia

Nvidia (NYSE:NVDA) designs and develops GPUs that are used to offload the burden of graphics processing from CPUs. In this way, the CPU and GPU work in tandem to improve the overall performance of the system. Due to strong adoption of GPUs, in the last 5 years, the company’s revenues and EBITDA have increased by 40% and 100%, respectively. Furthermore, seeing the strong growth in Nvidia’s stock price, we can infer that there is a broad consensus among investors that the company can continue to maintain its growth momentum going ahead. It is worth noting that Nvidia’s stock price has increased by more than 150% over the last year. In this analysis, we discuss the key factors fueling growth for the company:

A) Increasing Adoption of Deep Learning Across Multiple Industries: GPU-accelerated data centers are expanding in both High Performance Computing (HPC) and the cloud, driven by the growth of deep learning and Big Data. GPU’s have become the accelerator of choice for hyper scale data centers due to their superior programmability, competitive performance and power efficiency. It is present in AI platforms at hyperscale giants such as Microsoft, Amazon, Facebook, Alibaba, and Baidu for both training and real time influence too. Nvidia is engaged with nearly 3,500 companies and organization in the development of the deep learning technology.

B) Expansion of Advanced Driver Assistance Systems (ADAS) & Self-Driving Car Technologies: Nvidia has been working on building its DRIVE platform for automotive computing for over a decade and is in a strong position to leverage this growth. The company has shipped 5 to 6 million devices for cars (with its Advanced Driver Assistance Systems) and has an additional 20 to 25 million such devices to ship in its pipeline. In addition to its infotainment cockpit business, Nvidia is working with a number of companies that are developing self-driving car technologies, using NVIDIA DRIVE PX. These include car manufacturers, Tier 1 OEMs, start-ups and research institutions. The latest of Nvidia’s agreement is with Chinese search engine company, Baidu, to build an open platform for self driving cars. ((Baidu and NVIDIA Team Up on World’s First Map-to-Car Platform for Self-Driving Cars, nVidia Blog, September 2016))

C) Expansion in Gaming: The gaming ecosystem and the gaming industry is approximately $100 billion large. Growth in gaming is expected to be fueled by the anticipation of new blockbuster games, the rise of eSports, the emergence of new technologies like virtual reality (VR) and expansion in developing countries. Nvidia’s gaming platform has been growing at a >25% rate for the last two years. Since Nvidia has not fully penetrated the market, it believes there is ample scope for growth.

Further, it is rumored that Nintendo’s upcoming NX console will feature NVIDIA’s Tegra platform. This is a significant win for Nvidia because until now it had failed to gain a spot for its Tegra processor in any leading gaming console. Major gaming console companies such as Microsoft and Sony use AMD’s GPU to power their Xbox One and PlayStation 4, respectively. Even Nintendo uses an AMD GPU for its current gaming console – the Wii U. If the rumors about Nintendo switching to Nvidia’s Tegra processor were to be true, we can expect more design wins for Nvidia going forward.

See our complete analysis for Nvidia

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