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Could This Megacap Company Get Even Bigger?

By Matthew Frankel, CFP® and Trevor Jennewine – Oct 30, 2021 at 6:26AM

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Outside of FAANG, this is one of the largest tech companies in the world.

Graphics chip giant Nvidia (NVDA 1.34%) has grown into a monster stock with a market cap of nearly $600 billion. But in this Fool Live video clip, recorded on Oct. 18, Fool.com contributor Trevor Jennewine talks with colleague Matt Frankel, CFP®, about why he thinks there could still be lots of room to grow in the years ahead. 

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Matt Frankel: This is Nvidia, ticker symbol, NVDA.

Trevor Jennewine: Sure. I think this is probably one of those people are familiar with. Nvidia's a semiconductor company, probably most well known for the graphics processing unit, which they invented in 1999. It's revolutionized computer graphics. But since then, the GPU or the graphics processing unit has seen widespread adoption in other areas like professional visualization. It's used by creators that are using Adobe software, Autodesk software, or Unity software, and then also in the data center and automotive industries. Nvidia has really expanded its portfolio of products. It's not just a GPU company anymore. They acquired Mellanox. They completed that acquisition in 2020, which is a high-performance networking company.

They've got GPUs, they've got networking hardware and software. Then they've got an array of AI [artificial intelligence] and data analytics software that really makes them a strong contender in the data center sector. Just to put some numbers behind Nvidia's strength across its gaming and data center businesses. The discrete GPU market -- these are GPUs that people are purchasing individually to soup up their gaming rigs -- Nvidia owns 83% of that market as of the most recent quarter, and that's up from 80% last year, and that was up from 70-something percent the year before. They're actually still gaining market share.

Then when you're looking at visualization work tops or workstations, creators using 3D software, Nvidia has a 90% market share in workstation graphics. In the data center, their GPUs, they really function to accelerate compute intensive tasks. A CPU is very good. They're designed for low latency. They're very good at doing a few things very quickly. GPUs are very good at performing thousands of calculations simultaneously. When you have just tons of data to sift through in a short period of time, that's what GPUs excel at. Data analytics, artificial intelligence, high-performance computing, Nvidia has over 90% market share in the supercomputer accelerator market.

I mentioned automotive. They've also got their software stack and their hardware that can power self-driving cars, and they're gaining traction in that industry, too. The have partnerships with Volvo, [Daimler's] Mercedes, Nio, Audi, and then some robo-taxi companies like Amazon's Zoox and GM's Cruise. I think the company has such a solid foothold across these growing industries, that's why I've let it run. It's one of my larger positions for that reason. I think they put their data center market opportunity at $100 billion by 2024.

They are working on the Arm acquisition right now, still up in the air, trying to bring Arm CPU technology into the fold. But they've really expanded their business from where they started with the GPU, and they take this compute platform approach now. I think it has applications across a number of high-growth industries that should be important for the next decade and longer. What do you guys think?

Frankel: Last week on The Rank, Danny Vena had this on as we did stocks we just bought, and this is what he recently added. And he says he thinks this is going to be a $1 trillion company within five years. Two things I would say about Nvidia: I'm not a tech guy, and I don't think I missed it. If you mentioned cryptocurrency mining is another big application of their processors. You might have mentioned it when I glanced at my sheet real quick. That's one big thing, and if the cryptocurrency industry continues to gain traction, that could be a big auxiliary revenue stream.

I know you mentioned data centers. Data centers are an area that real estate investors follow a lot because a lot of the buildings are owned by real estate investment trusts. The economics and the tailwinds for that are just fantastic right now. Data centers are like the physical homes of the internet, and as technologies like 5G, and autonomous driving, and all these other data-heavy technologies continue to be built out, the data center space is not going to slow down. That's another big catalyst for Nvidia. It's not a stock I own, but it's one that's on my list.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine owns shares of Adobe Inc., Amazon, and Nvidia. The Motley Fool owns shares of and recommends Amazon, Autodesk, NIO Inc., Nvidia, and Unity Software Inc. The Motley Fool recommends Adobe Inc. and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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