If you want a piece of the action in the next tech boom, which company would you bet on? Would it be a maker of virtual reality headsets? Or would it be a company that builds driverless cars? How about a company that can capture the gains in both markets—NVIDIA Corporation (NASDAQ:NVDA) stock?
Virtual Realty Could Be Big for NVDA Stock
Virtual reality (VR) is one of the hottest fields in tech today. According to Goldman Sachs, the virtual and augmented reality (AR) market could become an $80.0-billion industry by 2025. (Source: “Virtual Reality Could Become an $80 Billion Industry: Goldman,” CNBC, January 14, 2016.)
No doubt, as the VR industry becomes more mainstream, companies that make VR headsets will make decent money. But keep in mind that for consumers to fully enjoy the VR gaming experience, they need a computer that is “VR ready.” That’s where NVIDIA comes in.
NVIDIA doesn’t make computers, but it does make one of the most important components that make a PC “VR ready”— graphics processing units, or GPUs.
You see, the biggest challenge for a computer to become “VR ready” is to handle the enormous amount of graphic data streaming from VR headsets. Taking the “Oculus Rift” headset as an example, it has a 2160 x 1200 resolution. But after the 1.4X “eye buffer” of the headset, the true render resolution would be 3024 x 1680. At a 90Hz refresh rate, the graphical demand coming from the “Oculus Rift” would be 457 million pixels per second. That’s a lot to handle! (Source: “Building a PC for Virtual Reality,” Logical Increments, last accessed February 18, 2016.)
Want to guess which company makes a GPU that can handle the graphical demand from the Oculus Rift? Yep, you guessed it: NVIDIA.
Oculus is offering special pricing on several “Oculus ready” PCs. They include PCs made by Asus, Dell, and Dell’s Alienware. If you check out the specs of these computers, you’ll see that all of them have NVIDIA “GeForce GTX” series GPUs. (Source: “Oculus Ready PCs,” Oculus, last accessed February 18, 2016.)
Note that before the rise of virtual reality, NVIDIA was already the go-to choice when it came to graphics cards—and not just for gamers. In the third quarter of 2015, NVIDIA had a dominant 81.1% market share in the graphics card market. (Source: “AMD’s Radeon Fury Graphics Card Claw Back Marketshare from Nvidia’s GeForce Lineup,” PC World, November 13, 2015.)
As the virtual reality industry moves to the main stage, NVIDIA’s graphics card business could get another boost.
NVDA Stock: Powering Driverless Cars Next?
Now, let’s shift our focus to something that could change everything we know about transportation—autonomous cars. As driverless cars hit the road, guess which company stands to make big money? Yep, it’s NVIDIA again.
When you talk about companies in the self-driving car business, you might be thinking of tech giants like Alphabet Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL), or even automakers like Tesla Motors Inc. (NASDAQ:TSLA) and Mercedes Benz. But to process all that road and traffic information, autonomous cars need a really powerful processor. That’s where the chipmaker comes in.
In January, NVIDIA announced “Drive PX 2,” its newest chip that will power self-driving cars. The chip is capable of running 24 trillion deep learning operations per second. What does that mean? It means Drive PX 2 is as powerful as 150 “MacBook Pros.” It can handle 12 video-camera inputs, as well as LiDar, radar, and ultrasonic sensors. It can take in all that information, analyze it, and decide what the next move is for the car. (Source: “Nvidia Boosts IQ of Self-Driving Cars with World’s First In-Car Artificial Intelligence Supercomputer,” NVIDIA Corporation, January 4, 2016.)
Several companies have already started testing their driverless cars on the road. But it may take a while before they become a reality for consumers. When that day comes, NVIDIA stands to make big money.
The Bottom Line on NVDA Stock
NVIDIA’s recent earnings report confirms my point. Despite the fact that the overall PC market isn’t growing as it once did, NVIDIA still achieved solid growth. In the fourth quarter of 2015, the company reported record quarterly revenue of $1.4 billion, a 12% increase year-over-year. Earnings per share surged 21% year-over-year to $0.52. (Source: “Nvidia Announces Financial Results for the Fourth Quarter and Fiscal 2016,” NVIDIA Corporation, February 17, 2016.)
Jen-Hsun Huang, co-founder and CEO of NVIDIA, remarked, “NVIDIA is at the center of four exciting growth opportunities—PC gaming, VR, deep learning, and self-driving cars.” (Source: Ibid.)
It’s safe to say that the best is yet to come for NVDA stock.