After soaring 230% in 2016, shares of NVIDIA (NASDAQ:NVDA) advanced just 2% this year. Optimism seemingly peaked for several reasons -- the company's valuation, the expiration of its cross-licensing deal with Intel, and growing competition from AMD (NASDAQ:AMD) and Qualcomm in the GPU and automotive chip markets.
That's why analysts expect NVIDIA's revenue and non-GAAP earnings to respectively grow 16% and 10% this year, compared to 38% sales growth and 83% earnings growth in fiscal 2017. However, investors shouldn't ignore four other key areas in which NVIDIA is expanding -- AI, driverless cars, gaming consoles, and smart homes.
More AI partnerships
Over the past few years, NVIDIA's high-end Tesla GPUs have been installed alongside data center CPUs to boost their machine-learning capabilities. In late 2015, Facebook installed NVIDIA's Tesla M40 GPUs in Big Sur, an open source computing platform for AI and machine-learning tasks.
IBM (NYSE:IBM) offers Tesla GPUs to cloud-based enterprise clients. Big Blue claims that pairing Tesla K80 GPUs with its own Power CPUs helped its Watson AI platform answer questions 1.7 times faster. IBM and NVIDIA are also installing Power8 CPUs paired with Tesla P100 GPUs in two new supercomputers for the U.S. Department of Energy.
NVIDIA also recently launched a hyperscale GPU accelerator blueprint with Microsoft, which is designed to boost the tech giant's cloud-based AI computing capabilities. These partnerships will all strengthen its data center business, which posted 205% annual sales growth last quarter and accounted for 14% of its top line.
New driverless deals
NVIDIA gained a first-mover's advantage in the automotive chip market because its Tegra mobile processors delivered better graphics, 3D navigation, and audio for infotainment systems than older custom processors. NVIDIA expanded upon that foundation with Drive PX, a Tegra X1-powered computer that controls the ADAS (advanced driver assistance systems) for automatic braking and lane changes. It followed that up with Drive PX 2, a platform which is 40 times faster and enables fully autonomous driving.
Leading high-end automakers like Tesla Motors and Audi are already using NVIDIA's technology, but the chipmaker continues scoring big wins in this market. It partnered with Baidu, HERE, and TomTom to develop cloud-to-car mapping platforms, partnered with Bosch to create a driving supercomputer called Xavier, and recently unveiled a proof-of-concept autonomous truck with Paccar. These moves will keep boosting its automotive revenues, which rose 38% annually last quarter and accounted for 6% of its top line.
The Nintendo Switch
AMD shut NVIDIA out of the console market by providing custom APUs for the PS4 and Xbox One, as well as the GPU for Nintendo's (NASDAQOTH:NTDOY) Wii U. Sales of those chips played a big part in the chipmaker's incredible comeback over the past year.
However, Nintendo unexpectedly used NVIDIA's Tegra X1 for its new hybrid Switch console. That decision was likely based on the fact that NVIDIA's lesser-known SHIELD tablet, which also used a Tegra X1, was based on the same idea -- converting a gaming tablet to a home console. Considering how strong the initial demand for the Switch has been, other console makers may consider launching similar hybrid devices powered by Tegra mobile processors. That demand would then complement Tegra's growth in the connected car market.
Earlier this year, NVIDIA introduced Spot, a $50 golf ball-sized microphone that can be plugged into any electrical socket to sync with NVIDIA's SHIELD TV set-top box and control smart home devices. The device accomplishes this by syncing with Alphabet's Google Assistant and Samsung's SmartThings platform.
On its own, the Spot seems like just another attempt to jump on the home automation bandwagon. However, it could also be an attempt to establish connections between its Tegra-powered vehicles, SHIELD devices, and smart home devices tethered to Google or Samsung's ecosystems. We won't really know until NVIDIA makes more moves, but it will be interesting to see if it can benefit from the growth of the smart home market.
The key takeaways
For now, NVIDIA investors should mainly focus on the growing competition in the GPU and automotive CPU markets. AMD's next-gen Vega GPUs could hurt sales of its current-gen Pascal GPUs, and two upcoming acquisitions -- Qualcomm's takeover of NXP Semiconductors and Intel's takeover of Mobileye -- could tilt the balance of the automotive chipmaking market.
But looking ahead, NVIDIA's growing presence in AI, driverless cars, gaming consoles, and smart homes could all help it become known as much more than a gaming GPU maker in the long run.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Leo Sun owns shares of Baidu and Qualcomm. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Baidu, Facebook, Nvidia, Paccar, Qualcomm, and Tesla. The Motley Fool recommends Intel and NXP Semiconductors. The Motley Fool has a disclosure policy.