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NVIDIA Is Showing Signs of Becoming a Top 5G Stock

By Harsh Chauhan - May 20, 2021 at 7:15AM

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The graphics specialist is making some notable moves to attack a massive opportunity.

NVIDIA (NVDA 4.28%) is famous for making graphics cards that power computers and data centers, but the chipmaker is gradually making its presence felt in the fifth-generation (5G) wireless technology space.

That may seem a bit surprising as there are more direct ways to play the 5G boom, such as smartphone giant Apple or infrastructure providers and chipmakers such as Marvell Technology and Qorvo. NVIDIA, however, can be counted as another top 5G play as it is targeting a massive opportunity in this vertical that could reap rich rewards in the long run.

NVIDIA's 5G play is gaining momentum

NVIDIA has been making a play for the 5G market with its Aerial application framework that's supposed to help telecom companies in the deployment of 5G virtual radio access networks (vRAN).

An abstract representation of a city connected by 5G.

Image source: Getty Images.

The graphics specialist has been partnering with well-known telecom companies such as Ericsson, KDDI, and SoftBank on vRAN, a market that's expected to clock a compound annual growth rate of 19% through 2030 as per third-party estimates. And last month, NVIDIA announced that it is expanding its 5G partnership by teaming up with the likes of Alphabet's Google Cloud, Fujitsu, Mavenir, Wind River, and Radisys for the development of an AI-on-5G platform.

According to NVIDIA management, the artificial intelligence (AI)-based platform should speed up "the creation of smart cities and factories, advanced hospitals and intelligent stores." The chipmaker also points out that "enterprises, mobile network operators and cloud service providers that deploy the platform will be able to handle both 5G and edge AI computing in a single, converged platform."

NVIDIA is making this possible by merging the Aerial software development kit with its BlueField DPU (data processing unit). The platform leverages the power of both GPUs (graphics processing units) and DPUs to help run 5G RAN and artificial intelligence applications such as "precision manufacturing robots, automated guided vehicles, drones, wireless cameras, self-checkout aisles and hundreds of other transformational projects."

So, NVIDIA is going after two lucrative markets with one shot -- AI at the edge and 5G. Simply speaking, AI at the edge means that data is processed closer to the source instead of centralized data centers to improve response times by lowering latency and reducing bandwidth consumption. Gartner estimates that about 74% of the data will be analyzed on the edge by next year. For comparison, 91% of the data was being processed in data centers a year ago.

The move toward AI at the edge will enable the adoption of technologies such as industrial automation, autonomous vehicles, and predictive maintenance, among others. Fifth-generation wireless networks will play a critical role in enabling AI at the edge thanks to terrific speeds and low latency, as the average speed of a 5G network is anticipated between 200 and 400 Mbps, much higher than just 25 Mbps for 4G networks. Meanwhile, latency is expected to drop from 20 to 30 milliseconds for 4G networks to less than 10 milliseconds in 5G.

Not surprisingly, NVIDIA's AI-on-5G platform has started gaining traction, as the partnerships discussed above indicate.

What does this mean for investors?

NVIDIA's 5G efforts are currently in the development phase. Mavenir, for instance, is developing Aerial-powered vRAN systems that will help them target both public and private 5G markets. Fujitsu's Open RAN system powered by NVIDIA Aerial is expected to arrive later this year, while Wind River and Radisys are using the Aerial AI-on-5G platform for powering industrial and enterprise 5G networks.

NVIDIA points out that AI-on-5G could add a whopping $13 trillion worth of productivity by 2035, citing IHS Markit's estimates. So, NVIDIA's 5G opportunity could start bearing fruit once the deployment of solutions based on its platform begins, and that may happen sooner than later given the progress its partners are making.

As such, NVIDIA investors can expect 5G to become another massive growth driver for the tech giant in the coming years, aiding the tremendous growth of the video gaming and data center businesses that are already on fire. NVIDIA has been recording robust financial growth as demand for its graphics cards has taken off, and the average selling price of NVIDIA's latest GPUs is also moving north. The situation is unlikely to change as demand is expected to outpace supply.

The data center business has been in fine form as well, and it should keep getting better thanks to NVIDIA's latest product development move. All of these catalysts are expected to drive 20%-plus annual earnings growth at NVIDIA over the long run, as per analysts' estimates. The addition of 5G into the mix could help accelerate this impressive pace of earnings growth and make NVIDIA a solid 5G play in the future, which is why investors should think of buying the stock before it soars higher.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and NVIDIA. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool recommends Gartner, Marvell Technology Group, Qorvo, and Softbank Group and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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