Over the course of the past several months, the proverbial “big story” for Nvidia Corporation (NASDAQ:NVDA) — and by extension, NVDA stock — has been the company’s work in the field of artificial intelligence.
As it turns out, the same technology that powers your computer screen is ideally suited for the hyperfast computing needed by AI applications such as autonomous driving.
The fact that its graphical processing technologies contract with Intel Corporation (NASDAQ:INTC) wasn’t renewed when it expired in March wasn’t earth-shattering news, even when it was believed Advanced Micro Devices, Inc. (NASDAQ:AMD) would step into Nvidia’s shoes. The company just had too many other bigger and better things going on to worry about than the fading partnership with Intel.
Funny thing is, while NVDA stock has matured and diversified since getting its start primarily as a developer of graphics processing cards, that very same GPU business may well become the hot button again.
And you’ve got video-game-addicted kids (and some adults) to thank for it.
Going Back to Nvidia’s Roots
The casual computer user may not know or care, but ask someone who plays PC-based video games … the one thing more important than a high-powered computer processor is a high-powered graphical processing unit, or GPU.
Some computers don’t have them; they’re built into the motherboard. Most laptops don’t have standalone GPUs either — or at least didn’t — for size, cost and power-consumption reasons. As is usually the case though, technologies shrink and become less expensive over time, so much so that it’s now feasible to put a true GPU into a laptop and make it just as powerful as a desktop-based computer.
Thus we have the advent of the so-called “gaming laptop.”
It matters to current and would-be owners of NVDA stock, even as it appears the company is largely leaving its past behind. See, this is a big market.
How big you ask? It depends who you ask, though all the estimates more or less jibe. Jon Peddie Research, for instance, reckons the entire PC-gaming hardware market was worth $30 billion last year, including laptop and desktop equipment (Nvidia sells both, by the way). Technavio believes the global gaming laptop market will expand to $22.5 billion by 2021 now that gaming laptops are affordable as well as powerful. Technavio also expects the gaming laptop segment of the market to grow at an annual pace of more than 21% to get there.
That’s a huge market relative to the $6.9 billion in revenue Nvidia produced last year, and the company is well-positioned to capture a big chunk of it.
Its deeper penetration of that burgeoning market will — for the time being anyway — at least partially lean on success with its MAX-Q platform. MAX-Q uses software to more effectively integrate a laptop’s motherboard and its GPU in a way that has never been done before.
The end result is a device that’s 70% more powerful than the typical laptop’s GPU, but stunningly thin; some gaming laptops can be up to two inches thick, but with MAX-Q on board, these devices can now be slimmer than two centimeters.
Perhaps more important to Nvidia stock holders, the company already has several manufacturers lining up to use the technology in their next-generation equipment.
And make no mistake. While the processor is still the brain of the computer and often the single most-expensive component in it, GPUs aren’t cheap. Ranging from a few hundred to several hundred dollars for a retail card you can put into a desktop, the revenue opportunity for a high-end card that fits into the confines of a laptop is at least as strong for Nvidia.
Bottom Line for NVDA Stock
Don’t misunderstand. AI, and more recently its foray into cloud-based data centers, are still a key part of the long-term picture for NVDA stock. It’s just not clear to what extent they will be part of the revenue mix. It’s supposed to be a $36 billion market by 2025, up from less than $1 billion last year. Those are guesses though. Nobody really knows what the future holds in terms of Nvidia’s artificial intelligence opportunity just because it’s still all very new.
Not so with GPUs. Graphical processing units are an old business, making it relatively easy to gauge its future. The outlooks for its future are bright, particularly now that next-generation technologies like MAX-Q are surfacing.
Point being, if you own or are mulling NVDA stock, you have to consider Nvidia’s current and future role in the GPU market. It’s a bigger deal than it has been getting credit for.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
