NVIDIA Corporation (NASDAQ:NVDA) is no longer just a PC graphics chip company. NVIDIA has transformed itself into a diverse platform company that has branched into professional visualization, cloud computing, and driverless cars. These three segments are growing rapidly and helping to increase the top line for NVDA stock. In the latest quarter, NVIDIA reported revenue of $1.4 billion, up 12% from a year earlier.
NVDA stock is up about 117% over the last five years, but it’s only up about two percent for the year, as earlier fears of a slowing global economy brought down most tech stocks. But going forward, NVDA stock is likely to rebound because there are just too many exciting growth catalysts for the company.
NVIDIA’s auto segment only comprises a small percentage of total revenue, but it’s also the company’s fastest-growing segment and it will be a huge growth driver for years to come. In the latest quarter, sales in the company’s auto segment grew 66% over last year, up to $93.0 million. (Source: “NVIDIA Quarterly Revenue Trend,” NVIDIA Corporation, last accessed March 3, 2016.)
Cloud computing is also doing well for NVIDIA and the company is optimistic that there will be high demand for their graphics chips in this segment. Growth in the latest quarter was 18% sequentially, up to $97.0 million. The company said that revenue from cloud computing will hit $1.0 billion in a few years and that growth in the segment will be about 60%–70% every year. (Source: “$1 Billion: Nvidia’s Earnings Forecast For its Cloud Computing Business,” Tech Times, June 1, 2015.)
Sure, NVIDIA has big plans to grow its cloud computing and driverless car segments. Growth after all in the latest quarter in both segments was impressive. But when it comes down to it, NVIDIA, at its core, is still a gaming company and still its biggest growth driver.
NVIDIA’s largest product segment is supplying its leading graphic processors for gamers—a market that it dominates. In the third quarter of 2015, NVIDIA held a commanding 81.1% share of the market for discrete graphics cards. (Source: “GPU Market Share Results For Q3 2015 — AMD and NVIDIA See Increased AIB GPU Shipments as PC Gaming Market Grows,” WCCF Tech, last accessed March 22, 2016.) In another report, three out of four gamers own an NVIDIA GPU. (Source: “NVIDIA/AMD Market-Share Graph Shows 3 Out of 4 Gamers Own an Nvidia GPU,” WCCF Tech, last accessed March 22, 2016.)
NVIDIA’s only real competitor is Advance Micro Devices, Inc. (NASDAQ:AMD), but it’s a distant second with only 18.8% market share.
Even with such a high market share, NVIDIA’s gaming division is still showing rapid growth. In the latest quarter, revenue hit $810 million, up 25% from the previous year.
Other than competing on price and performance, NVIDIA has been able to run away with market share by offering game developers a series of software libraries called “GameWorks.” NVIDIA provides all the code for graphic elements, which developers can use for the game. This saves game developers’ time since they do not have to build things like shadows, skin rendering, and lighting from the ground up. These libraries are optimized for NVIDIA graphics chips and cards, which gives the company a leg up over rivals.
So what will keep the gaming division going?
NVIDIA has several exciting catalysts.
The company recently released its top-of-the-line graphics card, the “GeForce GTX 980 Ti,” which the company is marketing as a great upgrade for hardcore gamers who are still using older graphics cards.
Sometime this year, the company’s next-generation “Pascal” GPUs will arrive, which will be 10 times faster than their previous chip. (Source: “Nvidia: Pascal Is 10x Faster Than Maxwell, Launching in 2016,” WCCF Tech, last accessed March 3, 2016.)
NVIDIA is also getting into virtual reality, which is about to take off. According to a research note from Goldman Sachs, virtual reality could become an $80.0-billion industry by 2025. (Source: “Virtual Reality Could Become an $80 Billion Industry: Goldman,” CNBC, January 14, 2016.)
NVIDIA isn’t making the headsets needed for virtual reality, but they are making the GPUs needed to power them. For example, to use the “Oculus Rift” headset, you also need to purchase a separate “VR-ready” computer. Oculus is directing customers on its web site to “Oculus-ready” PCs from several PC makers. All of them are equipped with an NVIDIA graphics card. As virtual reality grows, NVIDIA is sure to get a boost to its gaming segment.
The Bottom Line on NVDA Stock
NVIDIA’s core business is still showing crazy growth. With several catalysts to drive future growth in the company’s gaming division, it’s safe to say that good things will come to NVDA stock.