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Technology Stocks : Investing in Exponential Growth

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From: Paul H. Christiansen8/14/2017 12:05:56 AM
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Nvidia Is A Textbook Case Of Sowing And Reaping Markets



We know one thing for sure. Nvidia is on track to be a $10 billion company this fiscal year, with maybe 25 percent of that coming in as net income, and that is quite a feat. Nvidia’s Datacenter division is one of the reasons it can grow that much and be a respectably profitable company. Raking in $2.23 billion in sales and bringing $638 million of that to the bottom line is the second in four steps to get there.



In a properly working capitalist economy, innovative companies make big bets, help create new markets, vanquish competition or at least hold it at bay, and profit from all of the hard work, cleverness, luck, and deal making that comes with supplying a good or service to demanding customers.

There is no question that Nvidia has become a textbook example of this as it helped create and is now benefitting from the wave of accelerated computing that is crashing into the datacenters of the world. The company is on a roll, and is on the very laser-sharp cutting edge of its technology and, as best as we can figure, has the might and the means to stay there for the foreseeable future.

Nvidia has every prospect of being able to get a very large portion of the $30 billion in addressable markets that it is chasing with its Tesla accelerators in its datacenter product line – mainly traditional HPC simulation and modeling and machine learning training and inferencing – and is well on its way to fomenting new virtual workstation markets with its GRID line and instantaneous video transcoding and GPU accelerated database with its Tesla line, all of which are outside of that $30 billion total addressable market and which represent other very large opportunities.

“The number of applications where GPUs are valuable, from training to high-performance computing to virtual PCs to new applications like inferencing and transcoding and AI, are starting to emerge,” Huang explained on the call. “Our belief is that, number one, a GPU has to be versatile to handle the vast array of big data and data-intensive applications that are happening in the cloud because the cloud is a computer. It is not an appliance. It is not a toaster. It is not a lightbulb. It is not a microphone. The cloud has a large number of applications that are data intensive. And second, we have to be world-class at deep learning, and our GPUs have evolved into something that can be absolutely world-class like the TPU, but it has to do all of the things that a datacenter needs to do. After four generations of evolution of our GPUs, the Nvidia GPU is basically a TPU that does a lot more. We could perform deep learning applications, whether it’s in training or in inferencing now, starting with the Pascal P4 and the Volta generation. We can inference better than any known ASIC on the market that I have ever seen. And so the new generation of our GPUs is essentially a TPU that does a lot more. And we can do all the things that I just mentioned and the vast number of applications that are emerging in the cloud.”

Having said all of that, Nvidia’s second quarter was hampered a little bit by the transition to the Volta GPUs and by Intel’s delayed rollout of its “Skylake” Xeon EP processors and their “Purley” server platform. We and Wall Street alike had been thinking the datacenter business would do better than it did – we expected around $450 million based on past trends and the explosive uptake of Pascal accelerators – but the datacenter business only brought in $416 million in the second fiscal quarter. That said, the Datacenter division saw 175 percent growth year on year and managed to grow sequentially by 1.7 percent sequentially, which is no mean feat with two product transitions under way. (Three if you count the Power9 processor from IBM that Nvidia is tied to in some important ways, namely NVLink.) Nvidia does not break out Tesla and GRID sales separately, but we reckon GRID revenues were flat sequentially at around $83 million, and that the rest was Tesla units, up a smidgen sequentially at $333 million. If these estimates are close to reality, then the Tesla line alone now accounts for 15 percent if Nvidia’s revenues, and certainly a much higher proportion of its profits.

For the quarter, Nvidia sold just under $1.9 billion in GPU products, and $333 million in Tegra CPU-GPU hybrid products that are used in handheld gaming devices, drones, and autonomous driving platforms and other things we either don’t care about or hate here at The Next Platform. The Professional Visualization division of Nvidia, which we do care about and which sells Quadro workstation GPUs, posted $235 million in sales, up 10 percent year on year, and the core gaming business, driven by the GeForce GPU cards for PCs that make Nvidia’s ever-expanding business possible, had $1.19 billion in sales, up 52 percent. The OEM and IP business was a mixed bag, with the quarterly $66 million in royalty payments from Intel gone now, but with specialized GPU sales aimed at blockchain and cryptocurrency applications coming in at around $150 million (of the $251 million of OEM and IP revenue in the period), the overall Nvidia business made up for the what has to be called a minor slowdown in the Datacenter division (despite its growth) and the absence of Intel cash.

We know one thing for sure. Nvidia is on track to be a $10 billion company this fiscal year, with maybe 25 percent of that coming in as net income, and that is quite a feat. Nvidia’s Datacenter division is one of the reasons it can grow that much and be a respectably profitable company. Raking in $2.23 billion in sales and bringing $638 million of that to the bottom line is the second in four steps to get there.

https://www.nextplatform.com/2017/08/11/nvidia-textbook-case-sowing-reaping-markets/\



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