Transforming GPUs into a Trillion-Dollar Growth Engine
When Nvidia was established in 1993, the revolutionary impact of its pioneering hardware, the graphics processing unit (GPU), on the technology landscape was unimaginable. Initially designed for video-game graphics, GPUs leverage parallel processing to handle multiple tasks concurrently. This capability made them well-suited for applications like cryptocurrency mining and the training of large language models (LLM) for generative AI purposes.
Currently, data center chip sales, including the AI-capable H100, account for 80% of Nvidia’s revenue, while its gaming business has decreased to just under 16%. The projected market expansion for AI chips to $400 billion by 2027 presents Nvidia with considerable near-term growth opportunities. However, intensified competition may gradually erode market share and margins. To sustain its exceptional growth trajectory, Nvidia may need to reinvent itself once more – a challenge that its management appears capable of conquering.
Is Nvidia Transitioning into a Software Company?
Analysts at Melius Research suggest that Nvidia might be on the verge of a strategic shift towards software and services.
Over time, this shift could become a crucial strength, paving the way for sustained growth.
Nvidia recently launched DGX Cloud, an AI supercomputer that employs cutting-edge hardware to enable enterprise clients to construct and deploy customized AI models without having to establish their own data center infrastructure. Consequently, Nvidia will be competing with established cloud service providers like Amazon AWS and Alphabet’s Google Cloud. Nevertheless, Nvidia’s expertise in GPU design for these platforms grants it a competitive advantage in rapidly scaling this new growth driver.
Where Will Nvidia Stand in a Decade?
With a market capitalization of approximately $1.50 trillion, Nvidia currently ranks as the sixth most valuable company globally. Interestingly, three of the companies ahead of Nvidia, including Apple, Microsoft, and Amazon, achieved their positions by transitioning beyond physical products and embracing software. Over the next 10 years, Nvidia holds tremendous growth potential, and it wouldn’t be surprising if it eventually surpasses some of its larger rivals.
Despite a 211% increase in share prices over the past year, Nvidia still commands a reasonable price-to-earnings (P/E) multiple of 30, in line with the NASDAQ 100 average.