Nvidia (NASDAQ:NVDA) has been on a tear as of recently. Only adding on to its run over the past 2 years. Which really has been remarkable; they are up 218% over the past year with the help of a 30% run from May 9th until May 16th. This is truly amazing and I will show below why I believe Nvidia’s upward climb will continue.
Nvidia is a technology company based out of Santa Clara, California. They are focused on four markets gaming, professional visualization, data centers and auto. They design graphics processing units (GPUs) which are used in electronics such as gaming computers and are the base of many AIs. There leading model type is GeForce .
Although this is not the only thing Nvidia makes; they produce various technologies like the SHIELD T.V and recently released a tablet which is a further reach into the gaming industry. Now although a good amount of people know what Nvidia is very few realize just how big it can become. Their GPUs give them a key into the thriving AI industry and throughout this article that s what I will be focusing primarily.
How do GPUs Factor Into AI
Many regular computers run on CPUs which are great for everyday needs. However, for gaming computers a much faster computing chip is needed, one that can run smoothly with no glitches. This is where GPUS come in. A much faster computing chip which can perform at the rate needed smoothly. So originally GPUs were made for gaming but, in the past few years the potential for GPUs in AI has been exploited.
They have the necessary qualities to run the deep learning software which is fundamentally new model. Thus they are seen as the “the workhorse of modern A.I” – popularity science. (For a more detailed look visit Nvidia’s web page.)
Some of The Best GPUs On the Planet
Why is this so good for Nvidia? Well, it’s because they have the best discrete (when I say this I mean GPU’s used in data storing or in AIs) GPUs in the world. What proves this? They hold majority of the market share by a large margin. According to a recent report done by 3DCenter Nvidia holds 73% of the discrete GPU market share compared to AMDs (NASDAQ:AMD) 27%. (AMD is Nvidia’s only competitor in this category).
Now knowing they have the quality lets look into the growth of the market and the growth of Nvidia’s business of GPUs.
AI Industry Is Growing And The GPU is The Key
The datacenter GPU computing business is an essential part of Nvidia. If we are to see the rise in stock price to continue this is the key. Luckily it looks to be one magical key. In the most recent financial report which was released on May 9th Jensen Huang the founder and Chief executive officer of Nvidia said
“Our Datacenter GPU computing business nearly tripled from last year, as more of the world’s computer scientists engage deep learning. One industry after another is awakening to the power of GPU deep learning and AI, the most important technology force of our time,”
Still not convinced by what the founder is saying? Any fears that this growth will slow? Take a look at the numbers. According to a recent research report the global AI revenue will hit 47 billion dollars by 2020. That is from a mere 8 billion dollars in 2016.
This information combined with the fact that right now Nvidia has some of the fastest GPUs in the world puts them in a great position. As they are one of the top companies in a rapidly growing industry just like Amazon and Netflix were in their industries not so long ago. If they can just stay on track building high quality GPU’s they will be taking a major amount of that revenue and I do believe Nvidia has the leadership to keep advancing faster than their competitors.
Lets take a look into their general their management team. The average tenure is over 10 years and many have been working at the company for a long time. This provided we can see Nvidia has a seasoned and experienced management with many whom have been a major part of the success so far. This includes the co-founder Jensen Huang who has been with this operation from the start and shown us time and time again that he is the real deal.
The experience does not stop there. The average tenure of the board of directors is 19 years again showing lots of experience on Nvidia’s team.
With the track record of the leader Jensen Juang and some very experienced people around him I cannot see Nvidia straying to far off the path they are on now. Thus a major stake in the AI revenue is not to far away.
After Nvidia’s amazing quarter report analyst were more then excited about this companies future. I don’t know if they saw the potential in Nvdia’s GPUs or some other reason but they are definitely bullish. Many drastically increasing their price targets. Canacord Genuity raised their price target from 125$ to 155$ and reiterated their buy rating. RBC Capital Markets was not far behind when they increased their price target to 150$ from 138$.Goldman Sachs analyst Toshiya Hari increased the price target to a whopping 165$ from 130$ stating “Given increased confidence in the growth trajectory and its sustainability.”
Nvidia has the quality GPUs to carve out a major piece of an AI marketshare which is rapidly growing. They have the management to keep their momentum going and keep them on the right track. And they have shown that they are greatly benefiting from the current market conditions.
All of these reasons combined create a great opportunity. One I believe Nvidia will capture and greatly benefit from.
Disclosure: I am/we are long NVDA.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.