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NVIDIA Corp. Stock in 3 Charts

By Timothy Green - Mar 30, 2016 at 11:00AM

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Visualizing how dominant NVIDIA has become, and how its platform strategy has paid off.

Shares of graphics chip company NVIDIA (NVDA 4.66%) have been on a tear over the past three years, rising about 170%. In that time, the company has consolidated its lead in the gaming GPU market at the expense of rival Advanced Micro Devices (AMD 2.81%), while simultaneously pushing deeper into the enterprise and automotive markets. For a better idea of where the company stands today, here are three charts that NVIDIA investors need to see.

A dominant GPU market share
NVIDIA has long been the No. 1 player in the discrete graphics card market, but its lead over AMD began to grow dramatically in mid-2014. The typical 60-40 split between the two companies in terms of unit market share broke down, and by the second quarter of 2015, NVIDIA's share had surpassed 80%.

 

Data from Jon Peddie Research.

The market for discrete graphics cards is actually in decline in terms of units, down substantially over the past five years, according to Jon Peddie Research. But the market for high-end discrete graphics cards is growing, and that's what has been driving NVIDIA's results. During NVIDIA's most recently reported quarter, gaming revenue jumped 25%, driven by the company's Maxwell-based graphics cards. The company launched the GTX 970 and GTX 980 back in September of 2014 at disruptive prices, helping to drive its market share higher. The GTX 970, a $300-$350 part, has become the most popular graphics card in use on the Steam gaming platform, despite its high price tag.

AMD has regained a bit of market share over the past two quarters, and both NVIDIA and AMD plan to launch brand new GPUs this year, creating a potential opening for AMD to make a comeback. But with NVIDIA's graphics cards stickier than ever thanks to the company's efforts to build an ecosystem around its products, winning back considerable market share will be easier said than done for AMD.

Winning the accelerator market
In addition to the gaming market, NVIDIA's GPUs are widely used for high-performance computing and supercomputing applications. NVIDIA's Tesla GPUs are used as accelerators, providing vastly superior performance compared to CPUs for use cases well suited for the massively parallel architecture of a GPU. As of February of 2015, NVIDIA controlled 84% of the accelerator market.

Image source: NVIDIA.

According to NVIDIA, the accelerator business represents a $5 billion growth opportunity. During 2015, NVIDIA's datacenter business, which includes Tesla as well as GRID, the company's graphics virtualization platform, generated about $340 million in revenue, leaving a long runway for future growth.

NVIDIA certainly isn't without competition, though, and one of the biggest threats is CPU giant Intel (INTC 2.00%). Intel has offered accelerator cards of its own for the past few years, but the company's upcoming Knight's Landing could be a major threat to NVIDIA. The good news for NVIDIA is that Pascal, the company's upcoming graphics architecture based on a 16nm FinFET manufacturing process, is set to launch later this year. With Knight's Landing slowly rolling out this year, Intel's manufacturing edge will likely be minimized.

The datacenter business is one of NVIDIA's most important growth opportunities, and while its market share may shrink as competition heats up, Tesla has been a major success for the company.

Becoming a platform business
NVIDIA likes to call itself a platform company, and for good reason. In the gaming market, NVIDIA has built an ecosystem around its GeForce gaming GPUs, pushing software like GeForce Experience and launching its own SHIELD devices that provide additional functionality to owners of GeForce graphics cards. In the automotive market, the Drive PX and Drive CX platforms provide automotive companies with solutions, not just chips.

There's no better evidence to show that this strategy is working than the evolution of NVIDIA's gross margin.

NVDA Gross Profit Margin (TTM) Chart

NVDA Gross Profit Margin (TTM) data by YCharts

NVIDIA has become far less dependent on the OEM market over the past few years, helping to drive its gross margin higher. In fiscal 2013, sales derived from PC and Tegra OEMs accounted for 42% of total revenue. By the second quarter of fiscal 2016, that percentage had dropped to just 9%. OEM sales carry the lowest gross margin of any of NVIDIA's segments, well below the company average.

Going forward, NVIDIA is well positioned in all of its major businesses for continued growth, although competition, from AMD in gaming, Intel in data center, and a variety of competitors in automotive, will certainly pose a challenge.

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Stocks Mentioned

Intel Corporation Stock Quote
Intel Corporation
INTC
$44.35 (2.00%) $0.87
Advanced Micro Devices, Inc. Stock Quote
Advanced Micro Devices, Inc.
AMD
$101.53 (2.81%) $2.78
NVIDIA Corporation Stock Quote
NVIDIA Corporation
NVDA
$186.83 (4.66%) $8.32

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