On Monday at the Game Developers Conference 2018, NVIDIA (NASDAQ:NVDA) announced RTX, a ray-tracing technology for real-time rendering, which will enable developers to achieve cinematic-quality in their video games. The graphics processing unit (GPU) specialist also announced its partnership with Microsoft for DirectX Raytracing.
This is a huge achievement -- and yet another reason to buy NVIDIA stock -- as ray tracing in real time has long been considered the Holy Grail among the computer gaming industry.
Here's what you should know.
NVIDIA RTX and the Microsoft partnership
NVIDIA RTX consists of a scalable ray-tracing technology running on Volta, NVIDIA's newest GPU architecture. The company partnered with Microsoft to enable full RTX support for applications that use Microsoft's new DirectX Raytracing (DXR) API, an industry-standard platform. NVIDIA's GameWorks software development kit (SDK) will add a ray-tracing denoiser module, enabling developers to take advantage of the new real-time rendering capabilities.
Ray tracing is a method for producing visual images within 3D computer graphics environments with more realism than traditional rendering techniques. The technology enables the production of lifelike lighting, reflections, shadows, and such. Ray tracing has been used for many years to pre-render scenes in movies. But until now, it's been "too computationally demanding to be practical for real-time, interactive gaming," according to NVIDIA.
Volta changed that. The GPU architecture, which launched last year in select products, such as NVIDIA's Tesla GPUs for data center, is much more powerful than predecessor Pascal. It allows ray tracing to tackle the massive computational loads associated with real-time rendering. Along with its advances in GPU architectures, NVIDIA also credited its progress in computer graphics algorithms for enabling it to develop RTX, a technology it's been working on for 10 years.
RTX should rev up NVIDIA's already strong gaming-related growth
NVIDIA stands to profit from its RTX technology as game developers adopt the technology to increase the realism of their video games. Higher-quality games, in turn, should rev up the already booming gaming market. Game market researcher Newzoo forecasts that the global video-game market generated revenue of $16.1 billion in 2017, up 10.7% from 2016, and projects that it will hit $143.5 billion by 2020, which translates to a 7.3% compound annual growth rate (CAGR). Moreover, there's good reason to believe that growth will exceed this estimate, as Newzoo significantly revised upwards its 2017 forecast near the end of the year.
NVIDIA has been profiting handsomely from gaming's growth. In its fiscal-year 2018, the company's gaming market platform -- which sells GeForce graphics cards to PC gamers -- generated revenue of $5.5 billion, a 36% jump from the prior year, and accounting for 57% of its total revenue of $9.7 billion. The company's professional visualization platform also benefits from the growth in gaming, as this business sells Quadro GPUs to game developers, among others. In fiscal 2018, this platform's revenue grew 12% to $934 million, comprising nearly 19% of total revenue.
Management has said that gaming's main growth drivers include the rising popularity of esports, the increasing quality of video-game content, the sharing of game experiences on social media, and faster internet connections around the globe.