In case you haven’t noticed, NVIDIA Corporation (NASDAQ:NVDA) doesn’t just make graphic chips for hardcore PC gamers anymore. Turns out its chips can be used for a lot of other things, like driverless cars and cloud computing, which Nvidia is delving into. But there’s one technology in particular that Nvidia is betting big on that will be bullish for NVDA stock.
Nvidia released a new state-of-the-art chip this past week that the company says will push artificial intelligence (AI) to new limits. The “Tesla P100 GPU” can perform deep learning neural network tasks up to 12 times faster than the company’s previous chip. (Source: “Nvidia bets big on AI with powerful new chip,” The Verge, April 7, 2016.) The P100 has 150 billion transistors on a single chip, which makes it the world’s largest chip, according to Nvidia. (Source Ibid.) NVDA stock is up about eight percent for the year.
When I said that Nvidia was betting big on the chip, I wasn’t kidding. The company spent over $2.0 billion in research and development on the chip, so it’s clear that Nvidia is serious about being really good at machine learning.
Nvidia is also going to use the chip to power its new supercomputer called the DGX-1. The computer will pack eight P100 chips and cost a hefty $129,000. The machine comes with deep learning software pre-installed and will start shipping in June.
Neural network deep learning, or machine learning, is a type of artificial intelligence that simulates human-like thought processes by analyzing massive amounts of data to train the computer to recognize complex patterns.
The field is starting to get crowded as heavyweights such as Alphabet Inc (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB), and Baidu Inc (ADR) (NASDAQ:BIDU) are starting to make inroads in the technology.
And it’s no wonder. According to research firm Tractica, the market for deep learning artificial intelligence will increase from $202.5 million in 2015 to $11.1 billion by 2024. (Source: “AI for Enterprise Applications to Reach $11.1 Billion, Deep Learning will be Breakout Technology,” Scientific Computing, April 24, 2015.)
As such, Nvidia is positioning itself as an artificial intelligence chip maker, and that will be a major catalyst for NVDA stock going forward.
“Computers powered by deep learning can do tasks that we can’t imagine writing software for,” CEO Jen-Hsun Huang said on stage at the company’s annul GPU Technology Conference. “Deep Learning isn’t just a field or an app. It’s way bigger than that. So, our company has gone all in for it.” (Source: The Verge, op cit.)
Huang also said that products for the company’s data center business segment, such as the P100 chips, are “likely to be our fastest growing business.” (Source: “Nvidia’s Huang Expounds A.I. Vision: ‘We’re No Longer a Co-Processor!’ Is It Priced In?” Barron’s, April 6, 2016.)
In the latest quarter, the datacenter business increased 18% sequentially to $97.0 million and since the first quarter of 2015, the business has grown 70%. (Source: “NVIDIA Quarterly Revenue Trend,” NVIDIA Corporation, last accessed April 7, 2016.)
Those numbers reflect the rapid rise of the company’s deep learning products. Two years ago, Nvidia was engaged with about 100 companies interested in using deep learning. That number is now up to 3,500 companies in industries such as medical imaging, financial services, advertising, energy, and automotives. (Source: “The Current State of Artificial Intelligence, According to Nvidia’s CEO,” Fortune, March 22, 2016.)
The Bottom Line on NVDA Stock
Nvidia’s core graphics business is still showing crazy growth. In the latest quarter, chips for its gaming business hit revenue of $810 million, up 25% from the previous year. Even without a push into AI, NVDA stock will be just fine. But if Nvidia’s big bet on AI pays off, NVDA stock should push even further to new heights.