AtlasTrend continually monitors our investment universe for new opportunities for our Trends. These are our companies to watch and in the next article of our ongoing series, we introduce Nvidia Corp (NVDA US) and discuss how it is providing the power to process artificial intelligence (“AI”), augmented reality (“AR”) and virtual reality (“VR”), across various applications.

What once seemed like an impossibility only seen in science fiction movies has now emerged as a reality – many of us have probably seen or experienced AI, AR and AR in some way by now.

For example, VR headsets can often be found in shopping malls and retail technology stores (e.g. Samsung and Microsoft) and you may have seen applications of AR in games such as “Pokemon Go”, which took the world by storm in 2016.

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Whilst the technology remains in relative infancy, its development and use are accelerating and it is likely to transform how we live in profound ways.

AI is already being highly utilised and transforming many industries and some examples include:

  • Aviation (e.g. training and flight simulators)
  • Finance (e.g. algorithmic trading)
  • Automotive (e.g. production line robots)
  • Medicine (e.g. medical diagnosis, analysing medical records)
  • Human resources (e.g. resume screening, chat bots)
  • Music (e.g. virtual composers)
  • Transportation (e.g. autonomous cars)

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Nvidia and its graphics processing units

Nvidia (NVDA US) is at the forefront in the technology development around AI, AR and AR. Founded in 1993, it supplies graphics processing units (“GPUs”) which can be found in computers, gaming consoles, and mobile phones. These GPUs are widely utilised in the gaming industry and professional markets due to their high efficiency and performance capabilities.

Nvidia’s CEO Jensen Huang recently took the stage at the 2017 GPU Technology Conference (“GTC)” in Europe, referring to GPU computing:

“… we’ve dedicated our company’s life to advancing this form of computing to enable breakthroughs and science all over the world”.

In his keynote speech, Huang introduced early access to Holodeck, Nvidia’s intelligent VR platform. The platform enables designers to explore and create highly realistic, life-like 3D worlds, and is intended to minimise the costs of physical prototyping. The platform also allows multiple people to collaborate on the physically simulated environment in real time, and brings together designers, developers, and their customers from anywhere in the world.

Nvidia also enables platforms for “deep learning”, which is a type of machine learning that uses algorithms, big data, and the computational power of the GPU. An example of an application is autonomous driving. As you can imagine, such a task is very demanding computationally – tracking and identifying countless surrounding objects, localising the vehicle precisely at all times, and planning a safe drive path – and thus requires very high-performance computing power. Nvidia currently provides both the hardware and the software required for autonomous vehicle systems, with computers that can deliver 320 trillion operations per second of computing power. In the keynote, Jensen demonstrated how their systems could simulate 300,000 miles of driving in 5 hours – simulation being a vital component to creating safe autonomous vehicles.

AI has surfaced as the next frontier in technological development empowering businesses to solve problems and create new products that were previously not possible or too difficult (either practically or economically). With the immense amounts of data to utilise, Nvidia’s GPUs powers the computation required to recognise patterns and form deep neural networks. The company currently hosts programs that foster the work of the world’s top 20 AI research universities, and more than 1,300 deep learning start-ups.

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Record revenue growth but valuation looks stretched

In the most recent quarter (ending 30 July 2017), Nvidia reported a record revenue of US$2.23 billion, up 56% year-on-year and 15% quarter-on-quarter. Currently, Nvidia is focused on four market platforms: “gaming”, “pro-visualisation”, “datacentre”, and “auto”. These individual markets, compared to the first half of 2017, have seen significant growth in revenue:

Source: Company information

Gaming is currently Nvidia’s largest source of revenue with a total addressable market of US$7 billion, expected to grow to US$100 billion by 2020. With the significant growth of AI and autonomous vehicles expected over the next decade, the company estimates the total addressable market for their AI / datacentre market to grow from US$30 billion to US$75 billion by 2020 and the autonomous vehicle market to grow from US$8 billion to US$100  billion by 2025. Providing Nvidia can maintain or increase its market share in these industries, we expect this industry growth to translate into revenue growth for Nvidia. Indeed, analysts are expecting Nvidia to grow revenues by over 30% in FY 2018 and average 16% revenue growth over the following 3 years to 2021.

With its share price up 91% this year alone, Nvidia now has a market value of US$122 billion. Valuation wise, this translates to a 2018 price / earnings multiple of 51.1x, a 2018 enterprise value / earnings before depreciation, amortisation, tax and interest (“EV / EBITDA”) multiple of 38.5x and a 2018 enterprise value / revenue multiple of 13.2x.

These valuation metrics are arguably expensive, and we would wait for an opportunity to enter the stock at a more reasonable valuation. Until then, it remains a company to watch as it seeks to capitalise on the growth opportunities in large end target markets of AI, AR and AR.

The information in this article does not take into account your personal objectives, financial situation or needs. You should consider if the relevant investment is appropriate having regard to your own objectives, financial situation, and needs.

About the Author

Kevin Hua is the co-founder of AtlasTrend which is a member of the Which-50 Digital Intelligence Unit. Members contribute their expertise and insights to Which-50 for the benefit of our senior executive audience. Membership fees apply.


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