The Rise in AI Will Power NVIDIA Stock Further

NVDA StockGPU Platform Makes NVDA Stock a Clear Winner

NVIDIA Corporation (NASDAQ:NVDA) announced its fourth-quarter earnings last week, and this has gotten many investors excited about the company’s future growth potential.

In the era of artificial intelligence (AI), NVIDIA’s Graphics Processing Unit (GPU) platform has emerged as the dominating force buoying NVDA stock. The stock gained almost 30% in the last three months, in contrast to the nine-percent returns posted by the S&P 500 index.

NVIDIA Corporation reported phenomenal growth in most of its businesses in the fourth quarter of fiscal 2017. The record revenue posted during the fiscal quarter was boosted by the impressive growth in its Gaming, Professional Visualization, Datacenter, and Automotive divisions,

The quarterly revenue stood at $2.2 billion, which was an increase of 55% year-over-year and eight percent sequentially. The growth was particularly boosted by GPUs for gaming, data centers, and professional visualization, as well as for “Tegra” automotive systems. Revenue for fiscal 2017 was a record $6.9 billion, which is an increase of 38%. The profit for the full year was $1.67 billion. (Source: “NVIDIA Announces Financial Results for Fourth Quarter and Fiscal 2017,” NVIDIA Corporation, February 9, 2017.)

The full-year performance has once again proven that the company has a great future ahead with its GPU platform-based business model. Its revenue from the GPU business was $5.82 billion, up 39% from a year earlier, and from the Tegra processor business was $824.0 million, up 47% from a year ago. The GPU business has been the prime reason behind the amazing run for NVIDIA stock.

The following table summarizes NVIDIA revenue by its different market platforms.

Revenue by Market Platform
($ in millions) Q4 Q3 Q4 Q/Q Y/Y FY17 FY16 Y/Y
FY17 FY17 FY16
Gaming 1,348 1,244 810 8% 66% 4060 2818 44%
Professional Visualization 225 207 203 9% 11% 835 750 11%
Datacenter 296 240 97 23% 205% 830 339 145%
Automotive 128 127 93 1% 38% 487 320 52%
OEM and IP 176 186 198 -5% -11% 698 783 -11%
Total 2,173 2,004 1,401 8% 55% 6910 5010 38%

(Source: NVIDIA Corporation, last accessed February 15, 2017.)

Revenue from the gaming platform was a record $1.35 billion, rising at 66% year-over-year and up eight percent from the third quarter, as gamers continued to upgrade to the new “Pascal”-based GPUs and investors pushed NVDA stock prices higher.

Datacenter revenue was at $296.0 million, up 205% year-over-year and up 23% sequentially, reflecting strong demand for deep learning training, cloud and virtual reality (VR) computing, and “DGX-1” sales. During the quarter, the company also collaborated with Microsoft Corporation (NASDAQ:MSFT) to accelerate AI with a GPU-accelerated “Microsoft Cognitive Toolkit.”

Automotive posted a strong 38% year-over-year performance. Its partnership with Audi AG (OTCMKTS:AUDVF), which was announced at this year’s Consumer Electronics Show (CES 2017), buoyed the price of NVIDIA shares. In his keynote address, CEO Jen-Hsun Huang said that the company plans to have advanced AI cars on the road by 2020.

The chart below shows the phenomenal rise and rise of NVIDIA stock over the last five years. NVDA stock has posted 47% returns over the time period when the S&P 500 Index gained 14%.

NVDA Stock chart

Chart courtesy StockCharts.com

This has been possible due to NVIDIA’s GPU, which is the company’s cash cow. GPUs have become the de facto standard for deep learning, which takes us a step closer to AI. Even the major tech leaders like Microsoft and Alphabet Inc (NASDAQ:GOOG) use NVIDIA chips for their efforts in AI and deep learning.

But what is so special about these GPUs?

NVIDIA has described how GPU is in a class by itself. Its advanced capabilities were originally used for 3D game rendering. But now, those GPU capabilities are being used more broadly to increase computation workloads in areas as diverse as financial modeling and oil & gas exploration. A GPU, combined with a central processing unit (CPU), can deliver the best value of system performance, price, and power. (Source: “What’s the Difference Between a CPU and a GPU?,” NVIDIA Corporation, December 16, 2009.)

The following video by NVIDIA demonstrates clearly how a GPU is different from a CPU.

NVDA stock has been one of the favorites of investors since last year. NVIDIA has been named one of the “50 Most Innovative Companies” in Fast Company magazine’s annual list. The March 2017 issue discusses the “NVIDIA Drive PX 2” system and the latest generation of Pascal GPUs that provide unparalleled performance and power efficiency. (Source: “NVIDIA Named to Fast Company’s ‘50 Most Innovative Companies’ List,” NVIDIA Corporation, February 13, 2017.)

Jen-Hsun Huang said in the company’s earnings release, “Deep learning on Nvidia GPUs, a breakthrough approach to AI, is helping to tackle challenges such as self-driving cars, early cancer detection and weather prediction.”

He added that GPU-based deep learning is expected to revolutionize major industries like transportation, health care, and manufacturing. These new high-growth markets, the market-leading AI chips, and the top-tier partnerships should push NVIDIA stock to new highs in 2017.