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NVIDIA (NASDAQ: NVDA) is primarily known for revolutionizing computer graphics throughout the 1990s. Their powerful graphics processing units (GPUs) are found in many desktops, laptops, tablets, workstations and gaming consoles around the world. While many companies have now entered the computing space, NVIDIA holds several strategic advantages over its peers. With the experience, knowledge, and personnel currently in place, NVIDIA is a company that has continued to surpass expectations.
What is NVIDIA (NVDA)?
NVIDIA Corporation was started by three computer scientists in Santa Clara, California, with the goal of improving the 3D graphics experience for Personal Computers. Founded in California in 1993, Jen-Hsun Huang, Chris Malachowsky and Curtis Priem formed a plan to create microprocessors that would allow for full-motion video and stereo sound to be available on PCs. They quickly carved out a strong reputation and formed a strategic partnership with SGS-Thomson Microelectronics, one of the leading computing companies at the time. This was a game-changing move that allowed NVIDIA to release the NV1, their first multimedia accelerator microchip, in May 1995.
The success of the NV1 brought NVIDIA a lot of attention from gaming companies like Sega that wanted to use the chip for their Saturn gaming system. As a result of this success, NVIDIA was able to acquire funding from venture capital outfits, allowing it to grow aggressively and take up a position as the market leader. By the middle of 1996, approximately 30 competitors were offering 3D chips to the graphics market. At this time, NVIDIA held an impressive market share of approximately 24%. As a result of this early success, Forbes named NVIDIA as its “Company of the Year” in 2007. More recently, the company has diversified its product offerings to include GPUs and other computing parts used in automotive electronics, mobile devices and, since the late 2010s, Artificial Intelligence.
The company underwent a rapid period of growth through the mid-1990s and early 2000s saw them cement their position as industry leaders. The company’s biggest contribution to computing was the invention of the graphics processing unit (GPU), which renders videos and images for display. Virtually all modern computers now have some sort of GPU, although many other competitors have entered the field. NVIDIA GPUs enrich all kinds of media and communications, including high definition television, mobile phones, digital video (both 2D and 3D), audio and even broadband connectivity. More recently, they have placed additional focus on Artificial Intelligence, with their GPU chips acting as the brain and supplying the computing power necessary for products such as self-driving cars and robots to function. NVIDIA’s unrivalled product line has seen the company collect numerous awards, becoming recognized as producing the fastest graphics microchips on the market.
Why does NVIDIA (NVDA) Matter?
NVIDIA Corporation has a strong and well-deserved reputation as the leader in its field. In addition to their history as innovators producing technology that has pushed the boundaries of computing technology, today they continue their domination of the marketplace.
The NVIDIA Corporation continues to see increased demand for its technology and services. There are two key marketplaces that NVIDIA operates in that have greatly benefited from technology developed through in-house research and development. Their main revenue generator continues to be their GPUs. Their GeForce branded GPUs currently occupy 19% of the total PC GPU market share. While that number may seem low, the market is highly segmented and as a result, NVIDIA only trails two companies (Intel and AMD). Revenues related to gaming were a record $2.27 billion in 2020. As game makers continue to develop more detailed and realistic games, The total addressable market will continue to rise, leaving NVIDIA in a good position moving forward. The second area is data center operations, which is NVIDIA’s fastest-growing revenue stream. At the heart of the data centers of tech giants such as Amazon and Oracle are NVIDIA GPUs. These GPUs provide enough computing power for these service providers to continue doing their important work in areas such as data analytics and cloud computing. NVIDIA’s data center related revenue hit a record high of $1.9 billion in 2020.
NVIDIA (NVDA) Prospects
NVIDIA’s unstoppable recent growth has partly been a result of an effective executive team that is able to spot opportunities on the horizon. The best example of this is the $40 billion agreement to acquire Arm Limited. Arm is a UK based semiconductor and software design firm, specializing in developing and licensing intellectual property for microchip designs. Arm can be thought of as the architect behind chips found in a wide range of mobile devices, from iPhones to Microsoft Surface products. NVIDIA’s Tegra chip was specifically designed for mobile devices and is already used in the Nintendo Switch. With Arm’s design prowess and NVIDIA’s reputation for research and technology, this acquisition is likely to quickly accelerate their disruption of the mobile device market. While rival AMD already works with Samsung on their mobile device line, the strategic acquisition of Arm is likely to yield synergies down the road. The acquisition also allows NVIDIA to gain access to one of the largest collections of intellectual property in the sector, which is likely to further increase product offerings.
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NVIDIA Corporation remains an industry-leading producer of GPUs. Its home computing and mobile technology continue to be highly sought after, and strategic acquisitions and partnerships are a highly likely avenue for future growth. With GPUs capable of handling even the most resource-heavy Artificial Intelligence tasks, NVIDIA continues to push boundaries in technology. As it continues to diversify into these new sectors, NVIDIA is well-positioned to carry on its relentless growth.
Baggio has been an investor in the technology space for over half a decade. He uses the perspectives gained from his work experience in the private, public, and non-profit sectors to guide his investment strategy, with a specific interest in the potential of emerging disruptive technologies.