NVIDIA (NASDAQ:NVDA) has been on a tear in recent years, the result of the rapid adoption of artificial intelligence (AI) and the increasing popularity of gaming. Both developments play to NVIDIA's core strength -- the ability of its graphics processing units (GPUs) to perform a multitude of mathematical calculations simultaneously -- which works equally well in rendering images and powering AI systems.
A number of recent developments will be of keen interest to NVIDIA investors, as they indicate both opportunities and challenges in the weeks and months ahead. Read on to find out about a couple of massive opportunities and potential challenge coming down the pike for the GPU specialist.
Intel will try its hand at GPUs -- again
Intel (NASDAQ:INTC) has long coveted NVIDIA's success in the discrete desktop GPU arena. Last year, NVIDIA controlled over 70% of the market, with Advanced Micro Devices (NASDAQ:AMD) grabbing the remainder. Intel recently revealed that it plans to take another run at the market.
In a tweet earlier this month, Intel announced its "first discrete GPU coming in 2020." Late last year, Intel announced the appointment of Raja Koduri as the company's chief architect. Koduri previously worked at AMD as the head of the Radeon Group, signaling Intel's ambitions in the space.
As Motley Fool analyst Ashraf Eassa explains, "Intel is notorious for missing product introduction deadlines ... I'm not convinced that Intel isn't just going to tuck tail and exit this market if it hits a stumbling block." This isn't the first time Intel has tried to enter the GPU market. A previous attempt in 2009 ended in Intel scrapping the project. Whether or not the company's current development attempts will ultimately be successful or if its product will be competitive remains to be seen.
Smart cities and surveillance
Analyst Timothy Arcuri of UBS raised its price target on NVIDIA shares from $266 to $285, citing potential demand for Metropolis, the company's smart cities platform. According to NVIDIA, data is "being captured by over 500 million cameras worldwide, and that number is growing exponentially. This is creating a tsunami of information that's impossible for humans to analyze." The Metropolis platform uses cutting-edge AI that allows government agencies to analyze video feeds. NVIDIA says the system provides "robust security and surveillance solutions." The platform can also monitor vehicle and pedestrian traffic and locate parking in congested areas.
These systems are already in use throughout China, and "highly accurate facial-recognition algorithms have burst onto the scene in the last two years," according to Arcuri. "Our recent analysis of mass, real-time facial recognition in China, and its potential spread to other countries has uncovered a potential ... growth tailwind for NVDA earnings." He goes on to say that there will be rapid adoption in China, and the market for "mass facial recognition and traffic monitoring" represents an additional $5 billion market for NVIDIA by 2020, and could add as much as $1.01 in earnings per share to the company's bottom line.
A pending GPU release?
Rumors have been rampant for some time concerning when NVIDIA will release the next generation of its graphics cards for gamers. Many sources have claimed that the company would be releasing a new GeForce gaming processor late this summer, but NVIDIA CEO Jensen Huang recently sought to quash those rumors at an event earlier this month. When asked when the new GPUs might be released, Huang said, "It's a long time from now."
The latest grist for the rumor mill came from an interview with Hsu Wen-Feng, chairman of Power Logic, a company that manufactures cooling fans for gaming computers and GPUs. He said that the company's revenue would see strong momentum in the second half of this year from "increasing GPU cooling fan shipments starting in the third quarter," according to DIGITIMES. This comes on the heels of a discovery of a session at the Hot Chips 30 conference by NVIDIA titled "NVIDIA's Next Generation Mainstream GPU." It's important to note that the schedule on the conference website has been scrubbed of that title, which was screen captured and reported by VideoCardz. NVIDIA has a vested interest in delaying the announcement of any new product release as long as possible, in order to dispose of existing inventory. We'll have to wait and see if this was simply a mistake, or a case of misdirection on NVIDIA's part.
Why NVIDIA has the edge
The common thread between all these revelations is the growing opportunity in the GPU market. The overall market is expected to reach $157 billion by 2022, and that's bound to attract competition. But NVIDIA is continuing its torrid pace of innovation, making it difficult for competitors to keep up, and I don't expect that to change anytime soon.