In 1999, NVIDIA (NASDAQ: NVDA) invented the graphics processing unit (GPU), a chip that revolutionized the gaming industry. Then, in 2006, he introduced the CUDA programming model, turning GPUs into general purpose processors. Together, these innovations have transformed NVIDIA into a supercomputing company, fueling its rise in the data center market.
NVIDIA hasn’t lost that spark of innovation, and its pipeline is chock-full of products that could be growth engines over the next decade. In fact, if the company exploits its huge market opportunity, I think NVIDIA could be bigger than Apple by 2031. Here are three reasons why.
1. The data center
Currently, NVIDIA controls over 90% of the data center accelerator market. In the past 12 months, its data center business generated $ 7.6 billion in revenue, up 117%. But management sees a much bigger market opportunity – one that could generate $ 100 billion by 2024.
To this end, NVIDIA recently launched the DGX SuperPOD, a turnkey solution for enterprise artificial intelligence (AI). This cloud-native supercomputer simplifies AI, providing all the resources (i.e. hardware and software) that customers need to build and deploy AI applications on a single platform.
Likewise, the Bluefield-3 Data Processing Unit (DPU) is a new chip designed to speed up and secure data center infrastructure. Specifically, DPUs offload services such as networking, storage, and security, thereby improving the performance of central processing units (CPUs).
Finally, NVIDIA recently announced the Grace processor. Scheduled for launch in 2023, this ARM-based processor will speed up AI workloads by a factor of 10. Plus, alongside the DPU and GPU, it will make NVIDIA a three-chip company. CEO Jensen Huang believes this vertical integration will be a significant benefit, allowing NVIDIA to “re-architect the data center to advance AI.”
2. Autonomous vehicles
The NVIDIA DRIVE platform is designed to power autonomous vehicles (AV). It combines on-board hardware with AI software, allowing vehicles to see, think and move safely in their environment. In a recent report from consulting firm Navigant Research, NVIDIA DRIVE ranked as the # 1 AV compute platform in the market.
The brain behind this system is NVIDIA Orin, a supercomputer that delivers 254 TOPS of performance, which means it can perform 254 trillion operations per second. In comparison, the latest chip from Intelligence‘s Mobileye – player # 2 in Navigant’s report – only offers 24 TOPS.
While NVIDIA Orin won’t be available until 2022, automakers love NIO and Volvo have already chosen NVIDIA DRIVE to power their autonomous fleets. As a result, NVIDIA is expected to earn $ 8 billion in automotive revenue over the next six years. But that small number does not scratch the surface of its long-term potential.
Management estimates that the AV platform market will reach $ 25 billion by 2025. Given its competitive advantage, NVIDIA could capture the lion’s share of that number. And if that happens, auto sales could become a third major revenue stream for NVIDIA, complementing its gaming and data center businesses.
3. NVIDIA Omniverse
This summer, NVIDIA will launch Omniverse, a platform that allows customers to create real-time 3D simulations. It connects cutting edge design tools from partners such as Autodesk and Adobe, allowing collaboration in a shared virtual space. This is a big problem for three reasons.
First, Omniverse will speed up AI. NVIDIA DRIVE Sim is an Omniverse-based application that allows customers to generate synthetic driving data. This data can then be used in the real world to train AI models for autonomous vehicles.
Second, Omniverse is a subscription product. This is remarkable because semiconductor sales tend to be cyclical, which can lead to uneven revenue growth. But subscription sales are generally recurring in nature, which means Omnverse could help NVIDIA grow revenue more consistently.
Third, NVIDIA believes this is a stepping stone to the metaverse. If you are not familiar with the term, the idea comes from science fiction. The metaverse refers to a persistent virtual world, a digital reality where people can interact and share experiences.
Here’s the big picture: The virtual reality market will reach $ 69 billion by 2028, according to Grand View Research. And so far, NVIDIA Omniverse is rapidly gaining ground. During the three-month beta testing period, it was downloaded by over 17,000 users.
One last word
In short, NVIDIA enjoys a strong competitive position and a massive market opportunity. These two strengths should be growth engines over the next decade. But will they be enough to eclipse Apple’s current market cap of $ 2.1 trillion?
No one knows the future, but I think it is possible. Since fiscal 2016 (ended January 31, 2016), NVIDIA’s revenue has grown 29% per year. If it manages to maintain an annual growth rate of just 17% over the next decade (assuming its price-to-sales ratio remains unchanged), NVIDIA’s market cap would reach $ 2.2 trillion in 2031.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.