Fundamental Analysis of NVIDIA Corp. NVDA
Last update: 31.12.2017
The Company designs graphics processing units (GPUs) not only for the gaming industry but also for professional visualization, data centers, and car industry.
Nvidia has transformed itself from manufacturing of graphics chips to GPU (graphics processing unit) computing company. GPU computing enables the company to participate in the growth of mega tech-trends: gaming, VR, AI, and self-driving cars.
Nvidia’s thriving business provides double-digit revenue growth up 32% from last year with high-profit margins:
To sustain the growth of its business, Nvidia spends a lot of money for Research and development. In the last quartile, the company spent $462 mil. (19% of revenue) for R&D with a 24% YOY growth.
During the first nine months of fiscal 2018, NVIDIA spend $909 million for share repurchase and $250 million in cash dividends.
For fiscal 2019, NVIDIA plans to spend $1.25 billion to shareholders through ongoing quarterly cash dividends and share repurchases (Current Market Cap.: $119Bil. 29.12.2017).
Main drivers for the company’s growth:
Nintendo’s video game console switch uses Nvidia’s Tegra GPU. According to the Wall Street Journal, due to strong demand, Nintendo is ramping up production from an initial 8 million units to 16 million units for the first year.
GeForce GPU is commonly used in esport torments because of its high performance. Nvidia will continue to benefit from the fast-growing esport market.
Nvidia with its GeForce NOW subscription service, a kind of cloud gaming, tries to reach PC gamers who will or can not spend thousands of dollars on a state-of-the-art gaming PC. This means that Nvidia with GeForce NOW, potentially, can reach more than one billion PC gamers.
More and more cloud service companies adopt GPUs for AI (artificial intelligence) tasks such as image and speech recognition, especially for their internal deep learning training. Microsoft has recently purchased NVIDIA Tesla P100 and P40 GPUs for its Azure cloud.
Nvidia’s GRID graphics virtualization business which is a graphics virtualization platform for virtual desktops and apps allows its users to run high-end applications securely regardless of the type of laptop and experiences fast adaptation in the education, business services, and automotive sectors.
“At this point it is very clear that AI is going to be the future of computing. This is an endeavor that we started three years ago that we will put on the road next year – unbelievable,” NVIDIA founder and CEO Jen-Hsun Huang at the International Consumer Electronics Show in Las Vegas
Self Driving Cars:
The self-driving cars need AI to recognize several road conditions, traffic patterns, and unexpected events which can only be handled by high-performance computing like NVIDIA’s DRIVE PX 2 AI platform. Nvidia has already partnered with more than 200 companies, inclusive Toyota, Tesla, BMW, Audi, Volvo, Daimler, Bosch and several HD map makers.
Toyota: one of the world’s largest automakers, will use the NVIDIA DRIVE™ PX AI car computer platform to power advanced autonomous driving systems.
“The DRIVE PX platform fuses data from cameras, lidar, radar and other sensors. The system can then use AI to understand the 360-degree environment surrounding the car, localize itself on an HD map and anticipate potential hazards while driving. In addition, the system software receives updates over the air, so the car can become smarter and smarter over time.” from the Nvidia’s blog, for more click here.
Audi: The german car maker already uses NVIDIA® Tegra® technology in its auto-infotainment system.
“The start of production of the Tegra-based MIB infotainment system was a major milestone for Audi … the new modular approach allows us an independent evolution of automotive-cycle and consumer-electronics-cycle multimedia systems so that we can implement the latest and greatest innovations that allow the best possible customer experience with infotainment in the vehicle.” Mathias Halliger, head of architecture, MMI system at Audi for more click here.
Audi also plans to produce AI cars in 2020 in collaboration with Nvidia.
Tesla: All Tesla models are using NVIDIA DRIVE™ PX to power their on-board supercomputer that can provide the full self-driving capability.
BMW: All infotainment systems of BMW uses Nvidia’s processors.
Mercedes: Mercedes-Benz and NVIDIA announced a partnership to bring a NVIDIA AI-powered car to market.
“I am very proud of saying that within 12 months we are rolling out a product with NVIDIA,” Mercedes-Benz Vice President of Digital Vehicle and Mobility Sajjad Khan
Partnership with Baidu:
Baidu: NVIDIA and Baidu announced a broad partnership to bring the artificial intelligence technology to cloud computing, self-driving vehicles, and AI home assistants.
Baidu president and COO Qi Lu explained the goals of the partnerships at Baidu’s AI developer conference in Beijing (from Nvidia’s blog post):
- Bring next-generation NVIDIA® Volta™ GPUs to Baidu Cloud, providing cloud customers with the world’s leading deep learning platform.
- Adopt NVIDIA’s DRIVE™ PX platform for Baidu’s self-driving car initiative, and develop self-driving cars with major Chinese carmakers.
- Optimize Baidu’s PaddlePaddle open source deep learning framework for NVIDIA Volta GPUs and make it widely available to academics and researchers.
- Bring AI capabilities to Chinese consumers by adding Baidu’s DuerOS conversational AI system to NVIDIA SHIELD™ TV.
“NVIDIA and Baidu have pioneered significant advances in deep learning and AI,…We believe AI is the most powerful technology force of our time, with the potential to revolutionize every industry. Our collaboration aligns our exceptional technical resources to create AI computing platforms for all developers — from academic research, startups creating breakthrough AI applications, and autonomous vehicles.” Ian Buck, NVIDIA vice president and general manager of accelerated computing
Baidu will use NVIDIA HGX™ architecture with Tesla® Volta V100 and Tesla P4 GPU accelerators for AI training and inference in its data centers and combine its PaddlePaddle deep learning framework with NVIDIA’s TensorRT™ deep learning inference software to understand images, speech, text, and video.
Baidu’s self-driving car initiative Apollo will deploy Tesla GPUs and NVIDIA DRIVE PX 2, combined with NVIDIA software including CUDA and TensorRT.
Several major Chinese automakers announced that they will join the Apollo Alliance.
Nvidia’s Metropolis, a cloud platform using artificial intelligence to manage traffic, parking, law enforcement, and other city services can tremendously benefit from the partnership with Alibaba because Alibaba’s cloud services are already used by smart cities in China which will be more than 500 in coming years.
General Electric: Avitas Systems, a GE Venture, is partnering with NVIDIA to use artificial intelligence computing to optimize the use of robotics for inspection and better detect defects on industrial assets with advanced data analytics (here).
Walmart: Walmart plans to build own cloud computing network, one-tenth of the Amazon’s, to better compete with Amazon in e-commerce. Walmart will use Nvidia’s GPU in data mining and artificial intelligence.
GPU Demand from Blockchain Technology:
Blockchain technology is growing at a very fast pace and mainly used by mining of cryptocurrencies. To understand how much computer power cryptocurrencies require, one can look at the energy consumption: the Mining of Bitcoin which has the 42% of all cryptocurrencies market capitalization already requires more than 18 TWh energy, equal to ca. 1500k US household’s energy consumption.
The growing hash rate of the Bitcoin Network – process power (calculations per second) – confirms the growing need for computing power by Bitcoin Blockchain.
“We actually believe that the technology they are based on, called Blockchain, which supports secure accounting of distributed ledgers, has applications in financial services beyond cryptocurrencies. We expect demand for Blockchain GPUs (including for cryptocurrencies) to continue to grow and become an important driver for GPU growth, even if with some degree of volatility.” Jefferies semiconductor analyst Mark Lipacis
“Cryptocurrency and blockchain are here to stay. Over time, it will become quite large. It is very clear that new currencies will come to market. It’s clear the GPU is fantastic at cryptography. The GPU is really quite well positioned.” Nvidia CEO Jen-Hsun Huang
Mining of cryptocurrencies is not the only alternative to use blockchain. The mainstream financial institutions already began to use the technology: IBM’s Blockchain Technology for Finance.
Nvidia’s economic moat is narrow but the company has very innovative culture and therefore Nvidia’s R&D is ahead of the competition. The company widens the economic moat with its “The NVIDIA CUDA® Deep Neural Network library” which is hard to replicate by competition.
The Company’s narrow economic moat.
Like all hardware companies, NVIDIA is at risk of being commoditized like Cisco.
Nvidia heavily depends on R&D and any failure there can cause the company to lose the market share.
The Price of cryptocurrencies can affect the GPU demand.
(1) Despite the narrow economic moat, Nvidia will continue to grow in double digits.
(2) The Company operates in fast-growing markets and more competition will soon step in.
(3) Nvidia can be a long-term investment only then if the Company widens its economic moat. Until then, Nvidia remains as an investment for mid-term.
For the List of Corporate Analysis, click here
For the List of Technical Analysis, click here
No Investment or Financial Advice.
GET UPDATES VIA EMAIL
Sign up Now
You can unsubscribe at any time.