What the Nvidia Corporation (NVDA), Baidu Inc (ADR) (BIDU) Tie-Up Means for NVDA Stock

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Semiconductor giant Nvidia Corporation (NASDAQ:NVDA) and Baidu Inc (ADR) (NASDAQ:BIDU), China’s leading internet search company, are joining forces help Baidu expand its capabilities in the realm of artificial intelligence (AI).

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Often compared to Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) subsidiary Google in the realm of search, Baidu — which also has ambitions to expand in cloud computing, self-driving cars and home virtual assistant devices —  is looking to mirror Google’s AI capabilities in those areas. The Chinese tech giant believes Nvidia can help it get there.

This partnership can serve as a strong growth catalyst for NVDA stock, which rose as much as 3% on the announcement.

Betting on NVDA’s AI Push

Baidu president and COO Qi Lu, during his keynote address at Baidu’s AI developer conference in Beijing, described NVDA as having “the world’s leading deep learning platform,” referring to Nvidia’s next-generation Volta GPUs (graphic processing unit). Perhaps the biggest factor of the deal is that Baidu will also use NVDA’s technology for its self-driving car initiative, dubbed Apollo.

Nvidia, which has already teamed up with German car parts manufactures ZF and Bosch to develop new automatic driving systems, has carved a name for itself in autonomous vehicles. The company is really working with, among others, German luxury carmaker Audi AG NPV (OTCMKTS:AUDVF) to bring fully autonomous vehicles to market by 2020.

It’s for this reason that NVDA stock — up 50% year to date — has been a hot commodity. Investors see these partnerships as the first of many more deal NVDA will forge with other leading auto manufacturers.

In terms of the wide-ranging partnership with Baidu, the two companies are also collaborating on ways to not only optimize Baidu’s open source deep learning framework for NVIDIA’s Volta chip, but also Baidu’s DuerOS, the company’s virtual assistant technology aimed at entering the speaker market dominated by Amazon.com, Inc.’s (NASDAQ:AMZN) Echo and Google Home. It’s become so lucrative that Apple Inc. (NASDAQ:AAPL) has just unveiled its HomePod speaker.

TechCrunch noted that Nvidia Shield TV — the company’s set-top streaming box — will soon support DuerOS, meaning NVDA microphone chips for the home (or home speakers) that currently power Google Assistant, will work for Baidu’s virtual assistant. “Nvidia and Baidu have pioneered significant advances in deep learning and AI,” said Ian Buck, Nvidia’s vice president and general manager of accelerated computing. “We believe AI is the most powerful technology force of our time, with the potential to revolutionize every industry.”

Creating Runway for NVDA Stock

With NVDA stock soaring some 215% over the past year, there have been tons of bearish arguments questioning how much runway for growth the company may have left, especially since it appears that the PC gaming market and datacenter, where it competes respectively with Advanced Micro Devices, Inc. (NASDAQ:AMD) and Intel Corporation (NASDAQ:INTC) has gotten more saturated.

Nevertheless, Nvidia’s push into artificial intelligence and machine learning puts it in a category of its own. To that end, during the first quarter conference call with analysts, Nvidia founder/CEO Jensen Huang flexed some muscle with regards to the AI revolution and Nvidia’s position within the space. “Our Datacenter GPU computing business nearly tripled from last year, as more of the world’s computer scientists engage deep learning.” And the deal with Baidu, which marks Nvidia’s boldest step in AI and machine learning, is poised to accelerate increased chip revenue in the quarters ahead.

Bottom Line for NVDA Stock

There’s no doubt that NVDIA is in the early stages of transitioning from a PC graphics chipmaker to a leader in AI, which I believe will drive future growth. Indeed, while its forward P/E of 47, versus the S&P 500’s forward P/E of 19, suggest NVDA is no longer in the bargain bin, there’s still a strong money-making business being created.

As such, investors who have long-term horizons, say 12-18 months, nonetheless have a solid buying opportunity to own NVDA stock.

With gross margins still rising, combined with growth in datacenter, automotive, gaming and now AI and machine learning, NVDA stock can reach $180 by year’s end, delivering some 23% returns.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/nvidia-corporation-baidu-inc-adr-bidu-tieup-means-nvda-stock/.

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