NVIDIA (NASDAQ: NASDAQ: NVDA ) demonstrated its ambition to power the world over the next decade with its GTC 2022 keynote on March 22, 2022.
With a variety of applications, including the automotive industry, cloud computing, medical applications, digital twin simulation programs, and AI-on-5G platforms, it is not difficult to see that NVDA will indeed become a serious contender in the hardware world. Additionally, we expect NVDA's software revenue segment to expand significantly over the next decade as it monetizes its software components
Although highly speculative, NVDA will also have a better grasp of where its supply chain is headed, assuming a future partnership with Intel Foundry. Otherwise, a new Taiwan Semiconductor Manufacturing (TSM) factory in Arizona, USA will also be operational.
In this article, we'll focus on its opportunities in artificial intelligence, automotive, and data centers.
Breakthrough Modular AI Technology
As of March 25, 2022, NVDA stock is up 8% after the GTC 2022 keynote. It's clear that investors believe in its $1T opportunity while serving multiple $100T breakthrough segments including Gaming, AI Enterprise, Omniverse Enterprise, Automotive, Chips, and Systems.
As a full-stack computing company offering both hardware and software capabilities, Nvidia has proven itself to be a force to be reckoned with. Now, even more so, as the company is finally ready to monetize its Modulus AI technology. Nvidia CFO Colette Kress said:
Now we're entering a new phase, a new phase where we're thinking about software, and a business model where software is sold separately. The software side will provide a more predictable revenue stream.
During the GTC 2022 keynote, Nvidia also introduced the new Hopper H100 system, which uses a 4nm process and 80B transistors, surpassing the architecture introduced in 2020. This is a huge improvement over the previous A100 7nm process which only had 54.2B transistors.
Given that only 20 H100s can power global internet traffic, we expect the H100 to be the processor of choice for running complex AI workloads and emerging Metaverse concepts. Additionally, the NVDA CEO reported that potential customers could connect as many as 256 H100 chips, potentially creating the world's highest-performance GPU. This is a miracle, given the enormous potential of deep learning AI for complex computing processes.
We are confident in NVDA's ability to bring about the next wave of AI innovation, as its Modulus AI technology has been trained to help the world in multiple applications through the Omniverse digital twin platform. These include healthcare and pharmaceutical research, climate science, manufacturing processes including cars, building a metaverse for play, work, gaming, and more. Key to the platform is its ability to manage complex applications, simulate workflows and solve problems before it happens.
Impact of NVDA on Drug Discovery
Some real-life examples come from Insilico Medicine, a company using AI technology to develop drug candidates for the treatment of idiopathic pulmonary fibrosis (IPF). Typically, the preclinical phase can take up to six years before human trials begin. However, using NVDA's AI technology, this process was dramatically shortened to less than 18 months, effectively changing the course of future drug discovery. In addition, NVDA offers the FourCastNet physical machine learning model, a new AI-based weather forecasting model that can simulate and predict complex weather events in minutes, compared to the year it takes traditional methods.
Impact of NVDA in Architecture, Engineering, Construction and Operations (AECO) Workflows
As architects, we've been amazed by the new operational efficiencies that NVDA technology provides within Architecture, Engineering, Construction and Operations (AECO) workflows. With breakthroughs in artificial intelligence and virtual world reality, we can view/collaborate/solve design/construction issues with global collaborative teams before actual construction begins.
In addition, artificial intelligence assistants, such as Toy Jensen shown at GTC 2022, will be able to assist in the design process while also increasing productivity. As a result, NVDA's software and artificial intelligence machine learning capabilities are changing and revolutionizing the world's existing and future workflows across multiple applications and domains.
Given the rapid pace of global adoption of AI technology and its associated GPUs, it's not hard to see why NVDA's full-stack platform will remain highly relevant for decades to come. We admit that NVDA's initial starting point may have been the GPU chips powering the computing and gaming space. However, its true potential lies in its Modulus AI technology and software development, which builds on the prowess of its existing hardware. That's why NVDA is truly changing the world, and multiple industries at the same time.
NVDA's Leadership in Automotive Software and Hardware
NVDA's automotive segment could also be huge, given that it has partnerships with 20 of the top 30 passenger EV brands in the world. Mercedes-Benz and Jaguar have adopted their highest-level automotive product, a custom NVDA DRIVE Hyperion 8, built on an NVIDIA DRIVE Orin system-on-chip (SoC).
The system includes a complete software stack for autonomous vehicles (DRIVE AV) with driver monitoring and visualization (DRIVE IX) via multiple camera, radar and lidar sensors. Additionally, these monetized software upgrades can be performed over-the-air, delivering new features and functionality over the life of the vehicle. It ensures steady recurring revenue for NVDA's automotive division, beyond the usual upgrade cycles for vehicles that may not occur frequently.
NVDA's Multilayer Partnership for Automotive Systems
Many other automakers, including BYD, will simply adopt NVDA's DRIVE Orin™ system-on-chip (SoC) as the brain and operating system of these vehicles. Still, profitability can be achieved through continuous software upgrades.
NVDA also serves other vendors and developers such as Aurora ( AUR ), Baidu ( BIDU ) and Sony ( SONY ) through multiple partnerships in software, simulation, mapping and sensors. With a total pipeline value of over $11B over the next six years, we can probably expect strong revenue growth from NVDA's automotive segment, which the company estimates has a $300B opportunity long-term. NVDA founder and CEO Jensen Huang said:
The car of the future will be fully programmable, evolving from many embedded controllers to a powerful centralized computer - delivering AI and AV capabilities through software updates and enhanced over the life of the car. NVIDIA DRIVE Orin has been a huge success for companies building this future, and is the ideal AV and AI engine for next-generation electric cars, robotaxis, shuttles, and trucks.
With Hyperion 9 launching in 2026, we expect more adoption of the latest DRIVE Atlan SoC (Orin's next upgrade) as the world phases out fossil fuel vehicles to meet the global goal of becoming carbon neutral by 2030 . Additionally, as EVs and/or autonomous vehicles become the norm with increasing charging capacity over the next decade, we expect SoCs to become more cost-effective to produce over time, exponentially increasing adoption in the long-term. Given its leadership in the full-stack automotive software market, surpassing Tesla ( TSLA ), we expect NVDA's automotive ambitions to succeed.
The fastest data center CPU, may surpass AMD's Genoa and Bergamo
NVDA's latest data center product Grace CPU Superchip
NVDA also introduced an Arm Neoverse-based discrete data center CPU, the 144-core Grace CPU Superchip. We expect Grace to be a strong competitor to Genoa and Bergamo for AMD's new generation of x86 EPYC processors. Superchip connects the two CPUs via NVDA's NVLink-C2C interconnect technology. With both companies launching 5nm chips in 2023, we may expect stiff competition as they race to become the leading chip designers in the cloud computing industry.
NVDA also claims that its latest Superchip will deliver 1.5 times the core performance compared to the older 64-core AMD EPYC 7742 processors in the previously launched DGX A100 server in 2020. Plus, it will be twice as power efficient as today's top processors. Execution server chip. In contrast, AMD claims that Bergamo, the company's latest product for the data center space, offers only 1.25 times the core performance and twice the power efficiency of conventional N7 technology.
By comparison, NVDA makes a good case that by 2023, the Grace CPU Superchip will be the fastest processor on the market for a wide range of applications including hyperscale cloud and artificial intelligence computing. Still, with Bergamo launching in late 2021, it's only a matter of time before AMD unveils another high-performance data-centric chip at its next investor day to match or take over NVDA's Grace Superchip.
Long-term partnership with Intel Foundry
On March 24, 2022, NVDA highlighted the possibility of partnering with Intel (INTC) as another manufacturer of its chips. Currently, NVDA relies on TSM and Samsung (OTC:SSNLF) (OTC:SSNNF) for chip manufacturing, and global supply chain issues have caused NVDA's "revenue to be supply-constrained" over the past year.
Meanwhile, INTC, led by CEO Pat Gelsinger, announced its foundry ambitions in 2021, expanding its traditional CPU business. INTC also plans to make active investments of $20B in two new foundry lines in Arizona through 2024 and an additional $88B in Europe over the next decade.
Despite the naysayers, INTC has also moved forward and has advanced the adoption of ASML's TWINSCAN EXE:5000 and EXE:5200 systems in 2018 and 2022, the next-generation extreme ultraviolet (EUV) light produced in 2024 and 2025 respectively engraving machine. Industry insiders speculate that INTC will use the TWINSCAN system to launch 2nm chips in 2024 or 2025, the next-generation technology ahead of 4nm chips in 2022 and 3nm chips from rivals such as TSM and Samsung in 2023.
On the other hand, its biggest competitor, TSM, is only expected to produce 5nm chips at its factory in Arizona, USA from 2024. Additionally, there are rumors that construction delays due to the COVID-19 pandemic and labor issues could delay TSM's chip manufacturing in the US by six months until 2025. Still, we don't expect TSM to sit back and relax. Although speculative, we expect TSM to upgrade its manufacturing capabilities in the US to incorporate the latest technology to remain competitive. In addition, TSM may surpass INTC in 2nm product launches due to TSM's deep expertise in EUV technology commercialization.
Either way, NVDA will benefit from domestic supply stability moving forward with advanced 2nm chip technology. But, of course, that's assuming INTC can get its chipmaking technology up and running by 2024. Otherwise, TSM may lead again with 2nm technology.
So, is Nvidia a buy, hold, or sell right now?
NVDA projected revenue and net income
NVDA is expected to report revenue growth at a CAGR of 15.74% over the next two years. For FQ1'23, NVDA guided for revenue of $8.1B, gross margin of 65.2%, and revenue growth of 5.9% QoQ and 43% YoY.
It's also worth noting that NVDA is expected to record a one-time write-off worth $1.36B in the next quarter due to the failed acquisition of ARM. Still, NVDA remains a force to be reckoned with in its own right, trading at a current EV/NTM revenue premium of 19.99x, above its 3-year average of 15.03x. It's also trading at $281.5 (as of March 24), down 18.7% from its November 2021 high, but still 121% over the past year. Clearly, there is a sizeable growth premium embedded in its valuation.
Despite the growth premium, we have no doubts about NVDA's multi-pronged strategy going forward. Therefore, we will not evaluate NVDA based on its previous performance, but also consider the huge potential of its Modulus AI platform, data center CPU and NVIDIA DRIVE series in the self-driving electric vehicle industry. NVDA's upside potential is massive given that the AI market, data center market, and electric vehicle market are projected to grow at CAGRs of 40.2%, 10.5%, and 18.2% to $1.96T, $517.17B, and $823.74B, respectively, by 2030 , assuming successful implementation and widespread adoption.
As a result, NVDA stock remains attractively valued at current valuations, as the company is expected to beat expectations over the next decade. Tech investors aiming to invest in the market should add NVDA to their portfolio as a long-term investment.
Source: Metaverse Matrix