NVIDIA's (NVDA +0.77%) new artificial intelligence-optimized Volta-based graphics processing unit (GPU) accelerators are being adopted by Chinese technology titans Alibaba (BABA 1.38%), Baidu (BIDU +0.59%), and Tencent Holdings (TCEHY +0.44%) for their data-center and cloud-service infrastructures, NVIDIA CEO Jensen Huang announced last week at the company's GPU Technology Conference in Beijing.
Here's what you should know.
AI is powering NVIDIA's data-center platform growth. Image source: Getty Images.
NVIDIA's big win with Chinese tech giants
Alibaba Cloud, Baidu, and Tencent are upgrading their immense data centers, transitioning from using NVIDIA Pascal-based systems to Volta-based platforms. Volta is NVIDIA's recently released new GPU architecture, which the company touts offers "extraordinary speed and scalability for AI [artificial intelligence] inferencing and training."
In the last couple of years, enterprise companies have been rapidly adopting NVIDIA's GPU-based deep-learning approach to AI. Deep learning is a branch of AI in which an artificial "neural network" learns to recognize patterns in various types of data, including images and voice. NVIDIA's GPUs are already favored in training machines how to think, or make inferences, like we humans do. NVIDIA expects its new Volta-based platforms to help it make inroads into the second step of deep learning, inferencing, which involves machines applying what they've learned to new data.
Alibaba, Baidu, and Tencent aren't nearly as well known in the United States as internet and cloud service providers such as Amazon, Alphabet, Facebook, IBM, and Microsoft -- all of which also use NVIDIA GPU accelerators. However, they're all huge companies with massive growth potential, thanks largely to China's fast-growing middle-class population. Alibaba -- whose $437 billion market cap would make it the seventh-largest S&P 500 company if it were eligible to be included on the index -- is an e-commerce giant and also provides cloud computing and other services. Baidu -- often dubbed "the Chinese Google" -- operates the most popular search engine in China and has a host of other operations. In July, Baidu and NVIDIA announced a broad partnership in AI, spanning applications from cloud computing to autonomous driving and beyond. Tencent is one of the world's largest internet companies and the largest computer-gaming company in the world.
Image source: Getty Images.
NVIDIA's data-center business is growing like gangbusters
NVIDIA's Chinese tech giants success should help keep the company's data-center growth party going. Driven largely by companies adopting AI for internal uses and for use in their cloud service platforms, in just six quarters, NVIDIA's data-center business has gone from 10% year-over-year revenue growth and accounting for about 7% of the company's total revenue to 175% year-over-year growth and accounting for about 19% of revenue.
|
Fiscal Period* |
Data-Center Year-Over-Year Revenue Growth |
Data-Center Platform % of Total Revenue |
|---|---|---|
| 175% | 18.7% | |
|
Q1 2018 | 186% | 21.1% |
|
Q4 2017 | 205% | 13.6% |
|
Q3 2017 | 193% | 12% |
|
Q2 2017 | 110% | 10.6% |
|
Q1 2017 | 63% | 11% |
|
Q4 2016 | 10% | 6.9% |
Data source: NVIDIA.*NVIDIA's fiscal year begins in February. NVIDIA's other target market platforms are gaming, professional visualization, and automotive. The company views its key long-term growth drivers as AI, gaming, and driverless cars.
Looking ahead: An AI explosion projected
In the second quarter of fiscal 2018, NVIDIA's data-center revenue was $416 million, which equates to an annual run rate of $1.7 billion. NVIDIA pegs its data-center total addressable market (TAM) at $30 billion by 2020. It believes its high-performance computing (HPC) opportunity is $4 billion, while its AI deep-learning opportunity is $26 billion -- $15 billion from inferencing and $11 billion from training.
With the humongous data-center TAM, NVIDIA can be mighty successful without winning all the possible business within this realm. (Keep in mind it also has two other key long-term growth drivers -- gaming and driverless vehicles.) This is something that investors should keep in mind when they read articles essentially proclaiming that the bottom is falling out because NVIDIA lost or is rumored to be losing some business to competitors. Remember not to lose sight of the proverbial forest for the trees. For now and the foreseeable future, the data-center deep-learning forest belongs to NVIDIA, though investors should certainly keep an eye out for signs that the competitors' trees could take over the forest.
