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Nvidia Impresses Investors With A Bright Future Ahead

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Nvidia (NVDA - Free Report) proves yet again that they are a force to be reckoned with in the GPU space. Investors and shareholders are thrilled with the firm’s July quarter results. After a beat on both the top and bottom line following the bell last night NVDA has surged over 6% in morning trading.

Despite a slowdown in the semiconductor space, Nvidia has been able to perform above industry expectations. The firm was able to post a 16% sequential revenue improvement building up momentum for the remainder of the year. This figure was down 17% from the same quarter last year due to cyclical demand changes in the semiconductor sector.

Gaming GPUs are Nvidia’s largest topline driver. This segment grew 24% quarter-over-quarter but fell 28% year-over-year. The developing GeForce Now cloud gaming platform is going to be huge for this segment once the kinks are worked out and Nvidia is able to start monetizing the platform.

Data Center GPUs

Nvidia’s data center revenues have proliferated over the past 3 years, with 333% growth in this segment. GPU technology has progressed to the point that they can be used for AI advancement, cloud computing, as well as being the most effective way to mine cryptocurrencies.

GPUs are advancing fast, and it is a race between AMD (AMD - Free Report) and Nvidia to come up with the highest performing technology. GPUs are very agile tech that allows computers to process information at an astronomical rate. They are already beginning to replace CPUs in many computing processes. GPU technology is going to be integral in the exploration of AI. I discuss this in more detail in Nvidia vs. AMD: The Future of The GPU Space.

Like I mentioned, data centers are increasingly using GPU for quick and efficient processing power. This has caused exponential demand for this technology in what is known as hyperscaling. Hyperscaling has been driven by both machine learning as well as crypto-mining.

Hyperscaling recently hit a pause as crypto-mining has died down and the rest of the data center market is digesting the GPU tech that they bought last year. Analysts are anticipating a resurgent in hyperscaling next year.

There is a substantial amount of growth potential in deep learning and cloud computing with the expanding use of GPUs over CPUs in this space. The duopoly between AMD and Nvidia will benefit both parties as their tech advances. The AI economy is estimated to be worth $15 trillion, and these two firms could be at the ground floor of it.

According to Market Watch, 97.4% of infrastructure-as-a-service (IaaS) cloud-based technology use Nvidia’s GPU. The three largest players in the cloud space being Amazon (AMZN - Free Report) , Google (GOOGL - Free Report) , and Microsoft (MSFT - Free Report) .  

Nvidia is further expanding its reach into data centers with its acquisition of Mellanox pending approval.

Mellanox Acquisition

Nvidia is in the process of get their acquisition of Mellanox, a high-performance computing product and solutions company, approved by regulatory authorities. US officials have approved the purchase and approvals are now pending in Europe and China. Management is confident that the deal will close by the end of the calendar year.

This acquisition is a further plunge for Nvidia into AI and data centers. According to Nvidia’s press release earlier this year, “with Mellanox, NVIDIA will optimize datacenter-scale workloads across the entire computing, networking and storage stack to achieve higher performance, greater utilization and lower operating cost for customers.”

Take Away

Nvidia has provided investors with 18.4% returns this year,6 which is significantly less than AMD, which has illustrated 69% gains. Analysts will be raising estimates on NVDA after last night’s robust results, and I am confident that this stock will jump to a Zacks Rank #1-2 (Strong Buy – Buy) come Monday.

Nvidia has been known to produce higher-performing GPUs than AMD keeping their market share consistently stronger, with the split being around 80/20. As both Nvidia and AMD compete to create the next best AI and cloud computing GPUs, the tech is only going to proliferate in performance and both companies stand to gain.

 

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