Shares of NVIDIA (NVDA 1.14%) have been on a run over the past year, rising 234% as of June 19 as its aggressive focus on the fast-growing graphics processing unit (GPU), automotive, and data center markets has led to terrific financial growth.
Not surprisingly, Wall Street has remained largely bullish on NVIDIA, with a number of analysts bumping up their earnings per share (EPS) targets in the past month.
But investors shouldn't get carried away by the GPU specialist's terrific run. Rivals Advanced Micro Devices (AMD 0.07%), Alphabet (GOOG 0.58%) (GOOGL 0.65%), and Intel (INTC 0.45%) are ramping up their capabilities in three of its key markets, which could potentially hurt the chipmaker's growth. Let's see how.
AMD is gaining ground in GPUs
NVIDIA gets most of its dough by selling GPUs for PC gamers. The gaming segment accounts for 53% of its total revenue, but the chipmaker is now feeling the heat from AMD.
AMD has made rapid gains in GPU market share, controlling 27.5% of this space in the first quarter of 2017 as per estimates by Jon Peddie Research, up from 23.2% in the first quarter of 2016, indicating that its strategy of providing powerful GPUs at affordable prices is bearing fruit.
But AMD is now going to hit NVIDIA in the high-end GPU market, where margins are higher, with its Vega GPUs. The company's Radeon Vega Frontier edition GPU is priced at $1,200 for the air-cooled version. This puts NVIDIA's top-of-the-line GPU, the Titan Xp, right in AMD's sights as it is priced similarly.
Independent benchmark tests indicate that AMD's offering trumps NVIDIA's recently launched Titan Xp in key areas including computational power and bandwidth memory. AMD is aiming for NVIDIA's leadership in high-end GPUs that tackle virtual reality (VR) workloads in a bid to boost margins.
Additionally, AMD is expected to unveil its consumer edition Vega GPUs in late July and could start selling them before the holiday season, which is typically a strong period for GPU sales. NVIDIA investors, therefore, should be wary of AMD's aggressive product development as the latter could make further inroads into the GPU market once its new graphics cards hit the market.
Alphabet could rain on NVIDIA's data center parade
NVIDIA's data center business has grown at a terrific pace and is now its second-largest source of revenue after gaming. In fact, the company's data center revenue jumped 186% year over year during the first quarter of fiscal 2018, thanks to the massive uptake of its Tesla GPUs in data center applications.
NVIDIA's Tesla GPU accelerators for the data center are being used by the likes of Tencent, Microsoft, Amazon, and Alphabet as they are capable of significantly boosting computational power at very low costs.
The graphics specialist lays great stress on Tesla's capability of powering artificial intelligence (AI) applications in the cloud. It made a big move in this space earlier this year by partnering with Microsoft to develop an AI platform that can be deployed across several applications including self-driving cars and healthcare. However, NVIDIA could potentially lose Alphabet's business since the latter has now decided to commercialize its own AI chip -- the Tensor Processing Unit (TPU).
Earlier, Google's TPU only had inferencing capabilities (but not training capabilities), so it was relying on NVIDIA's chips. But the company has now added AI training capabilities to its second-generation TPU, and will start offering the same to the users of its cloud services through the Google Compute Engine.
This is a red flag for NVIDIA given the improving adoption of Google's cloud services, and could pose a bigger danger in the long run if Google decides to open-source the TPU and sell it to other cloud service providers.
Intel is making big moves in the automotive space
NVIDIA's automotive business isn't a big money-maker yet, contributing just 7.2% of the overall revenue, but it could become a big deal in the long run as self-driving car adoption grows. The chipmaker has already penned deals with a number of automakers that are already using its technology in their cars.
However, Intel's recent moves in the self-driving car space could pose a challenge to NVIDIA's progress. The chip giant has been gradually gathering the pieces to accelerate its autonomous driving technology development, first by planning to acquire Mobileye and then bringing Delphi Automotive on board as a part of its alliance with BMW.
These four companies have already displayed their potential in self-driving car technology. For instance, Delphi has already integrated Intel's technology into an Audi SUV that was tested successfully in dense traffic in Silicon Valley, and it has also created an autonomous driving platform for BMW.
The alliance will start testing 40 autonomous cars in the second half of 2017 so that they can collect more data and improve their self-driving platform. This could be bad news for NVIDIA investors as Intel has strung together an impressive group of companies with diverse technological know-how to attack the self-driving car opportunity.
NVIDIA has been a stock market darling thanks to its rampant growth. But investors shouldn't forget the challenges that it might face in these key areas.