Nvidia's (NVDA -0.79%) best known for its graphics processing units (GPUs), the chips that are powering the crucial artificial intelligence (AI) tasks of training and inferencing. Thanks to the GPU's top speed, large language models (LLMs) process all of the data they need to go on do their job -- from offering us conversational assistants to streamlining a company's workflow.
Though these chips play a key role in Nvidia's success, they aren't the only item this top tech company offers to potential customers. Nvidia actually sells a range of products and services to advance AI projects -- and one in particular is emerging as a potential winner. In fact, Nvidia, which already highlighted this business in its past earnings call, may offer us more details during this week's earnings report. Could it become the company's next growth driver? Let's take a closer look.
Image source: Getty Images.
From video games to AI
First a bit of background on Nvidia's path so far. For years, the company's biggest business was serving the video game industry -- but in more recent times, it became clear that the GPU's ability to simultaneously process tasks could be useful in other industries. Nvidia created the parallel computing platform CUDA to make that happen -- and what followed was an expansion into many areas, including AI.
These days, Nvidia's data center revenue far surpasses its video game revenue -- $18.4 billion vs $2.9 billion in the most recent quarter. Data center includes revenue from AI chips along with all other AI-related products and services. And this brings me to Nvidia's next potential growth driver: software.
Software is essential for businesses to run AI applications, and accelerated computing involves a lot more complexity than general computing. The problem is each individual company launching an AI project doesn't have the extensive engineering team necessary to oversee software stacks across every cloud and on premises.
That's where Nvidia comes in. Chief executive officer Jensen Huang describes Nvidia AI Enterprise as sort of an operating system for AI. Through this platform, Nvidia manages customers' software stacks and "containerizes" them into the Nvidia stack. This business already has reached a $1 billion run rate, and it's in its early days. In fact, Huang predicts every enterprise software company launching software in any cloud or on premises will run on Nvidia AI Enterprise -- making it "a very significant business over time."
Is Jensen Huang too optimistic?
So, is Huang being too optimistic or could this really be a big growth driver for the company? It's important to remember that AI still is in its early days, meaning companies and organizations are just getting started when it comes to investing in AI and launching projects. So need for not only Nvidia's GPUs but also its AI Enterprise service should increase from this point.
Nvidia also has built a solid reputation as the go-to company if you're looking for premium GPUs -- and it's logical that many customers won't stop there but will instead sign on for this package that could make their AI experience more efficient and successful.
All of this means AI Enterprise could be Nvidia's next important growth driver, and investors should look for any details about progress in this area during the earnings report on Wednesday. Software growth could take time, though, as companies don't launch AI projects overnight -- instead, we may see a progressive increase in demand over the coming years.
What does this mean for you as an investor? Nvidia has seen explosive growth in revenue and earnings in recent times, and I expect growth to continue thanks to the company's leadership and the general industry outlook. But I wouldn't be discouraged if growth ebbs and flows at certain points -- it's unlikely to see revenue soar at a higher and higher pace without any sort of pause.
What's most important is Nvidia's range of products and services, including software, has what it takes to supercharge revenue over the long term as customers turn to this AI leader. All that means it's a great idea to buy and hold Nvidia stock to benefit from the next chapters of the AI story.
