Nvidia (NVDA 0.14%) CEO and co-founder Jensen Huang's comments during quarterly earnings updates are always a must-listen. But the leader of the world's largest semiconductor company (as measured by market capitalization) dropped some real bombshells during the fiscal 2022 third-quarter update for the three months ended Oct. 31, 2021.
Huang hinted that just one product within the company's new Omniverse software suite, Avatars, could bring in $40 billion a year in technology spending someday.
Suffice to say that's a big number, especially considering Nvidia has only hauled in $24 billion in sales over the last 12-month period. But if Huang is right and Avatars is as big an opportunity as his company thinks, it explains why Nvidia stock could still be one of the best tech investments for the duration of the 2020s.
A little multiplication and imagination to get to $40 billion
Nvidia has been talking a lot about its new software platform Omniverse this year -- even before Facebook rebranded as Meta Platforms (META -4.27%) to highlight its focus on the "metaverse." And on the Q3 earnings call last week, Huang hinted at why he's so excited about the software layer Nvidia is building atop its advanced computing hardware portfolio. According to Huang:
I demonstrated probably the ... largest application of robots in the future, and it's avatars. We built Omniverse Avatars to make it easy for people to integrate some amazing technology for computer vision, for speech recognition, natural language understanding, gesture recognition, facial animation, and speech synthesis, recommender systems, all of that integrated into one system and running in real time.
In other words, not all robots are physical machines. In fact, many technologists like Huang believe software-based robotics that interact with us via a video animation will be the largest application of AI-enabled robots. These intelligent systems could be commonplace one day soon, assisting us with sales checkout at retail stores and restaurants or check-in at airports and hotels, acting as the interface between a passenger and a smart car, or taking care of customer support on a website.
But where does the $40 billion-a-year assumption come from? Huang said the Avatars business model works as a software license, and it will cost $1,000 per year per user. Nvidia believes there are 40 million digital designers and creators worldwide that could use Avatars to build these software-based bots -- so 40 million multiplied by $1,000 equals a $40 billion-per-year addressable market for Nvidia's Avatars tool.
Is $40 billion a year even feasible?
$40 billion a year in software licensing is a big deal. That kind of revenue stream wouldn't just rank Nvidia as one of the largest semiconductor companies around, but also among the world's largest software and technology giants. It's a massive opportunity, and I doubt Huang would casually throw that kind of lofty number around if he didn't think his company has a shot at scooping up a big chunk of it. But is this really feasible?
Perhaps it is, and Huang's follow-up comments explain why a 40-million-user assumption might be reasonable:
But don't forget that intelligent use or intelligent users that have been connected through Omniverse will likely be much larger as digital buyers than humans. So I mentioned 40 million, but there are 100 million cars. And these 100 million cars will have the capability to have something like in Omniverse Avatar and so those 100 million cars could be $1,000 per car per year. And in the case of the 25 million or so places where you would have a digital avatar as customer support or check out smart retail or smart warehouses or smart whatever it is, those avatars also would each individually be a new account and so they would be $1,000 per Avatar per year.
Basically, 40 million possible Omniverse Avatar creators and designers could be only the beginning. That's because in the metaverse -- the visual representation of the internet and digital world -- non-human "users" could far outnumber real people.
And with humans vacating repetitive and soul-crushing work in droves (a movement dubbed "the great resignation" by media outlets), businesses are already in serious need of help. Hiring a software bot for $1,000 a year doesn't just fill a need, it also saves money compared to hiring an employee that might not be super excited about their repetitive task-oriented job anyway.
All of this Avatar licensing revenue, of course, doesn't include the Nvidia hardware that would need to be bought and installed to support these virtual machines. Tally it all up and you can start to get a sense of the hundreds of billions of dollars in sales that will be up for grabs in the decade ahead.
With such a massive opportunity, Nvidia has competition, and more will no doubt enter the field. But when considering the future addressable market for Omniverse Avatars, $40 billion actually doesn't seem like a totally unreasonable forecast for the long term.