Nvidia: Gaming Rebound And Huge AI winds

Nvidia is poised to benefit from the aforementioned cloud growth as its A100 GPUs are the building blocks of many data centers. But more importantly, its newest H100 GPU is a force to be reckoned with. This product offers up to 9 times faster performance than its predecessor (A100) and more importantly up to 30 times better performance for AI workloads which includes the "inferencing" of large language transformer models (according to Nvidia data). This is a major deal as viral AI platforms such as ChatGPT use "Transformer Models". In fact, the GPT in ChatGPT stands for "Generative Pre Trained Transformer Model". The good news is Nvidia hasn't just "jumped on" to the AI hype train. The business has been at the forefront of innovation in this space for many years. Nvidia's GPUs are used by the largest supercomputers in the world. In November, Microsoft (MSFT) announced plans to build "one of the most powerful" AI supercomputers in the world, which effectively would string together a series of Nvidia A100 and H100 GPUs. Microsoft recently invested $10 billion in Open AI (the founder of ChatGPT). Therefore, I believe the company is a leader in AI and many more billions are likely to flow into this market. Nvidia is also working with other major technology companies and it was announced in January 2022, Meta Platforms would build a "massive" AI supercomputer with over 6,000 Nvidia A100 GPUs. In my eyes, it would not surprise me if Meta upgrades its order to benefit from the newest H100 products.

Nvidia also offers an AI platform that enables businesses to develop customer machine learning and AI solutions. This covers everything from data preparation to model training and deployment. Thus, Nvidia doesn't just offer the hardware but also the software to enable the AI industry, which should be great for margins and scalability long term. Recently, the business announced a partnership with Oracle (ORCL) to help scale AI for enterprises which I believe could be quite lucrative in the future.

As mentioned in the introduction, Nvidia is a leader in high-performance Graphics Cards or GPUs (Graphical Processing Units) and the company has ~80% market share of the add-in board type. In the fourth quarter of fiscal year 2023, the company reported Gaming revenue of $1.83 billion which increased by 16% quarter over quarter, despite still being down 46% year over year. Nvidia has a long way to go for a full recovery but the recent quarter-over-quarter increase is a major indication of a potential rebound (I have plotted the details on the chart below). The business has recently rolled out a series of new graphics cards which include the RTX 4090 and 4080 for desktops, which quickly sold out across many stores despite the high price. Thus it is clear the demand is extremely strong in the gaming community.

Nvidia has also recently rolled out a range of gaming laptops which offers another lucrative revenue stream for the company. In addition, the business operates the GeForce NOW cloud gaming service, which has continued to grow to over 25 million members across the world. In February 2023, Nvidia announced a 10-year deal with Microsoft to bring popular Xbox games such as Halo and Minecraft to Nvidia GeForce, which should vastly increase the appeal to consumers. This product could also be further enhanced should Microsoft's controversial acquisition of Activision Blizzard finally be approved by regulators.