NVIDIA's Key Role in Rise of Artificial Intelligence
- By Shudeep Chandrasekhar
One of the biggest reasons for NVIDIA's (NVDA) explosive growth in the last few quarters has been the company's datacenter and auto segments posting solid gains. The datacenter group (DCG) has grown a massive 109.72% during the second quarter compared to last year, while the auto segment revenues climbed 67.61% during the same period. The additional revenue NVIDIA was able to earn out of these two segments propelled the company to post over 20% growth for the quarter.
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But where is that growth coming from and how does NVIDIA stand to gain from an evolving tech landscape? To understand that, we need to look into artificial intelligence as a viable industry segment.
In an earlier article called " NVIDIA: Where Will Real Growth Originate," I covered a different side of its future growth drivers. In today's piece, let's look at what AI can do for the company.
The rise of Artificial Intelligence (AI)
As the cloud industry continues to show significant growth led by Amazon (AMZN), Microsoft (MSFT), IBM (IBM) and Google (GOOG), the race for artificial intelligence supremacy is now heating up. It is not just the cloud industry players, but even companies like Facebook (FB) that are relying on artificial intelligence to power their products and services. At the heart of this transformation is deep machine learning, which consists of neural networks that can be applied to practical applications such as speech recognition, natural language processing, cognitive functionality and so on.
A good practical example for AI is Apple's Siri, the well-known virtual assistant available since the release of iOS 5 in October 2011. Today's Siri is far more cognitive and intelligent than it was five years ago because it's constantly learning by listening to us, interpreting our questions and finding the most relevant answers. But more important is the fact that such artificially intelligence systems are able to bring efficiency into daily processes. For example, Google's Deep Mind project achieved a 40% reduction in the amount of electricity needed for cooling their data centers, resulting in 15% worth of savings on power consumption.
There are plenty of ways in which AI can help companies internally. And nearly all the tech majors are racing to get that extra edge with their own products. On the one hand there are tech majors like Apple and Amazon beefing up their own AI portfolios; on the other, companies like IBM are using AI in the form of Watson to empower their partners and clients in diverse areas such as self-driving vehicles and health care . Either way, these are exciting new revenue streams for these companies.
To bring things back to NVIDIA, these AI systems typically work with enormous amounts of data almost on a real-time basis. As such, the computing power required for these systems must be of the best possible caliber. This is where NVIDIA features heavily. Although Intel has been building its chip line up to address the explosive growth in this area with their Xeon Phi processors, NVIDIA claims that its Pascal-based Titan X GPUs are much better than their rival's.
"A system with four Pascal-based NVIDIA TITAN X GPUs trains 90% faster and a single NVIDIA DGX-1 is over 5x faster than four Xeon Phi servers."
- NVIDIA
The triple digit growth in datacenter group growth, therefore, cannot be merely good luck. During the recent earnings call, NVIDIA revealed that all major tech companies are their clients.
"Datacenter revenue reached a record $151 million, more than doubling year-on-year and up 6% sequentially. This impressive performance reflects strong growth in supercomputing, hyperscale datacenters and grid virtualization. Interest in deep learning is surging as industries increasingly seek to harness this revolutionary technology. Hyperscale companies remain fast adopters of deep learning, both for training and real-time inference, particularly for natural lingual processing, video and image analysis. Among them are Facebook, Microsoft, Amazon, Alibaba and Baidu. Major cloud providers are also offering GPU computing for their customers. Microsoft Azure is now using NVIDIA's GPUs to provide computing and graphics virtualization."
If NVIDIA continues the current growth rate of its datacenter business fueled by deep learning/AI, then the company would effectively be creating a significant lead over others, specifically Intel, which is currently bogged down by its PC-industry-related troubles. In fact, it would seem that NVIDIA has almost zero competition in this space so they may well be crowned the kings of GPU-powered artificial intelligence without a fight.
If that's the case, then by no means should you allow this company to miss your portfolio. In the complex world of continual technology disruption, this could be one of the simplest choices to make.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
This article first appeared on GuruFocus.
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