NVIDIA (NASDAQ:NVDA) stock has skyrocketed over the last year, leaving many investors wondering whether it's time to sell, and others asking whether it's too late to buy.
Let's take a look at three operating segments that are showing no signs of slowing down.
NVIDIA's data center business has been the company's fastest-growing segment. In the most recent quarter, data center revenue tripled year over year and increased 23% over the previous quarter to $296 million. This brings its trailing-12-month revenue to $830 million.
The data center business is on pace to be the company's largest segment in the next few years. The rapid adoption of deep learning and artificial intelligence (AI) has been well under way by technology companies like Facebook and Microsoft but is only just scratching the surface in government, science, healthcare, retail, transportation, and finance.
On the most recent conference call, NVIDIA CEO Jen-Hsun Huang said about the utility of deep learning: "It is incredibly useful, and this tool has at the moment found no boundaries of problems that it's figured out how to solve."
It seems this tool also has no boundaries in growing NVIDIA's data center revenue.
NVIDIA is also applying its GPU technology to assist automakers in using AI systems for self-driving vehicles. NVIDIA's DRIVE PX 2 platform is being used for AutoCruise, sensors, and cameras to allow a car to locate itself on a map and choose the safest route forward.
Volkswagen AG's Audi and Daimler AG's Mercedes-Benz will have self-driving cars out later this year using NVIDIA's technology, and Tesla has already begun using a new autopilot system powered by NVIDIA's DRIVE PX 2 platform in the new Model S and Model X cars.
By 2020, cars will begin rolling out with more advanced autonomy that will allow drivers to turn control over to the car in all safe driving conditions. Driver attention will only be required in a few circumstances, such as severe weather.
NVIDIA will have competitors in the self-driving car market, but as of now, NVIDIA is the clear leader supplying autonomous car technology to major automakers, auto suppliers, and mapping companies.
Selling GPUs to PC gamers so they can enjoy the most graphically intense games is still NVIDIA's largest business. In the recent quarter, gaming revenue increased 66% year over year to $1.35 billion. Gamers are upgrading older GPUs to the new Pascal-based GPUs, which are providing more capability for competitive gaming with e-sports and virtual reality (VR).
Going forward, e-sports, VR, and the Pascal upgrade cycle should continue to boost the gaming segment. The graphics quality of games is getting better, so that encourages more gamers who are using older GPUs to upgrade. Competitive gamers who participate in e-sports tournaments need high-end GPUs to provide the best gaming experience in order to compete at the highest level, and NVIDIAs GTX family of GPUs test out higher on the performance charts compared to alternatives from Advanced Micro Devices.
What is NVIDIA's market opportunity?
One reason above all others why I like NVIDIA is that its GPU technology has the potential to serve every economic sector in the world. It is clear NVIDIA has a lot of room to grow over time, but it is hard to quantify the size of its market opportunity, which leads me to believe that investors and analysts may be under-appreciating the long-term value of the business even after the stock's meteoric rise.
The trigger that will allow NVIDIA to grow to a much bigger business is its technology being adopted as the standard for solving problems in deep learning, AI, and autonomous vehicles. This is why Intel and Microsoft saw tremendous growth during the rapid PC adoption in the 1990s, and it could be NVIDIA's important tipping point to delivering great returns over the next 10 years and beyond.