NVIDIA (NVDA 1.27%) has been red-hot this year. The graphics specialist has delivered stunning growth in revenue and earnings on account of tremendous demand from the video gaming and data center businesses. The secular growth opportunities in these two markets make NVIDIA one of the top growth stocks to buy right now, as they sent the company's revenue up 84% year over year last quarter to $5.66 billion.
However, another reason why investors should consider loading up on NVIDIA stock is because of the moves it is making in the 5G wireless space, which should give its data center business a huge shot in the arm. NVIDIA has already trained its sights on the 5G market, and its latest announcements indicate that its development efforts are gaining currency with key customers. Let's take a look at how NVIDIA is working its way toward a lucrative opportunity.
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NVIDIA is expanding its AI-on-5G ecosystem
NVIDIA's 5G play is aimed at using the blazing-fast speeds brought by the new wireless standard in the field of artificial intelligence (AI). The chipmaker has been making steady progress on this front, announcing a slew of partnerships in April with a bunch of companies for the development of an AI-on-5G platform. This AI-on-5G platform powered by NVIDIA's Aerial application framework aims to accelerate the deployment of edge AI services with the help of fast 5G speeds.
NVIDIA has now taken a couple of steps to encourage the adoption of its Aerial platform, which the company says is "an application framework for building high performance, software-defined, cloud-native 5G applications to address increasing consumer demand."
First, NVIDIA announced the launch of an AI-on-5G innovation lab in partnership with Alphabet's Google Cloud. NVIDIA aims to help network operators and infrastructure providers take advantage of the hardware and software platforms provided by this lab to "create new profit centers built on AI and machine learning."
Put simply, the lab is meant to accelerate the deployment of smart factories, smart cities, and other applications based on 5G and AI. NVIDIA says that its partners will start developing solutions using the innovation lab in the second half of the year.
The second move made by NVIDIA should increase the reach of the Aerial AI-on-5G platform. Aerial will now support Arm-based CPUs (central processing units) in addition to x86 processors. This is a smart move, as major cloud service providers such as Amazon, Alibaba, Microsoft, and Oracle, among others, are running Arm-based chips in their servers. It is worth noting that the revenue of ARM-based servers shot up 430% year over year in the third quarter of 2020, as per IDC's estimates, followed by a 345% spike in the first quarter of 2021.
All of this indicates that NVIDIA is preparing to take advantage of the intersection of 5G wireless technology and AI, a combination that could spawn a huge revenue opportunity. According to Frost & Sullivan, the market for AI, memory, and power amplifier semiconductors within the 5G space could be worth $15 billion by 2025, clocking a compound annual growth rate (CAGR) of 74% during the forecast period. That's a huge jump from just $537 million in revenue last year, so NVIDIA is sitting on a massive catalyst.
Playing the long game
However, investors shouldn't expect NVIDIA's 5G opportunity to start contributing immediately to its top and bottom lines. NVIDIA has already said that partners will only start developing on the AI-on-5G innovation lab in the second half of 2021, while the Aerial A100 AI-on-5G platform that supports Arm CPUs will only be available in the first half of 2022.
So there's still some time before 5G starts making a meaningful contribution to NVIDIA's finances. But there is a great incentive for investors to buy the stock right away instead of waiting for the 5G catalyst to kick in. That's because NVIDIA looks set to sustain its high levels of growth in the future thanks to the strength of its two main businesses.
Meanwhile, the company is also setting itself up for long-term growth in the automotive market. Not surprisingly, analysts estimate NVIDIA's earnings to grow at more than 26% annually for the next five years.
As such, there are several reasons why NVIDIA is a top tech stock that's worth buying right now, and the huge 5G catalyst is likely to amplify its astronomic growth once it kicks in.
