What Nvidia CEO Just Said Could Mean Billions of Additional Growth
Nvidia‘s (NASDAQ: NVDA) The stock price reached a high valuation of 115 times earnings following another successful earnings report. It’s a steep price, but Nvidia keeps it attractive by continuing to launch new products that expand its long-term growth potential.
During the call for results, CEO Jensen Huang spoke about the huge opportunity with Nvidia Omniverse, a software platform designed as a collaboration tool for developers working on 3D simulation and building virtual worlds. Huang said Omnverse is “one of the greatest graphics opportunities we’ve ever seen.”
Image source: Getty Images.
This statement has incredible significance for investors. Nvidia’s professional visualization segment, which includes Omniverse, currently only accounts for 8% of Nvidia’s business. Additionally, Omniverse is a software platform, while Nvidia’s core business is still selling more graphics chips to data centers and gamers. If Huang is right, Nvidia may have just found another profitable growth driver that no one was talking about in early 2021.
Professional visualization revenues accelerate
Omniverse is Nvidia’s answer to the metaverse – a virtual world that will allow people to communicate with each other and interact with 3D objects using augmented reality, virtual reality, and artificial intelligence. It’s an idea that has been introduced in several films and novels over the years, with notables like The matrix (1999) and Snow accident (1992) and Nvidia strives to make it happen.
Nvidia just launched Omniverse Enterprise, which charges an annual license fee of $ 9,000, and it has been well received, with over 700 companies reviewing the platform. This launch comes just as Nvidia is starting to see a significant acceleration in the pro viewing segment.
In the fiscal third quarter earnings report, Nvidia said total revenue increased 50% year-on-year to $ 7.1 billion, but pro viewing revenue grew 144% year-over-year. , reaching $ 577 million. After years of uneven growth, this segment has only just started to take off in the past two quarters.
Image source: Nvidia.
This might just be the start of a rebound in revenue growth for the professional visualization business, and it has the potential to be as big as a data center and quite possibly bigger than the desktop segment. long-term games.
Nvidia could enable the future of e-commerce
Omniverse is a replication engine for training robots, augmenting real world data, and basically simulating how the real world works. This is what is meant by the “metaverse”. It’s not just about playing games on Roblox or chat with people using a virtual reality headset; it is envisioned as an entirely separate digital version of the real world.
One of the hallmarks of the metaverse is to use virtual avatars that spawn for others to see. Nvidia offers Omniverse Avatar for this purpose. There could also be wide use of robotic avatars which could change the way people shop online. For example, Huang mentioned on the earnings call that there are about 25 million retail stores. Each of these stores could have an AI powered robotic avatar to help you checkout or browse merchandise.
Nvidia Omniverse essentially lays the infrastructure for the future of e-commerce. It also has practical applications for businesses that can use Omniverse to create replications of buildings, factories, and cities to optimize logistics and other business operations. This is a huge growth opportunity for Nvidia, but it may take a while to fully materialize.
How big is the Omniverse opportunity?
During the call for results, Huang referred to an annual license fee of $ 1,000 per user to use Omniverse. There are an estimated 40 million creators and designers worldwide, bringing the addressable market to $ 40 billion.
However, there is more to the opportunity here. The $ 40 billion figure excludes the additional sales of graphics processing units (GPUs) that users will buy for their PCs or cloud servers in order to run Omniverse, which can run on any device that uses graphics technology. RTX from Nvidia. This opens the door to the mass market since any consumer laptop with an RTX graphics card can use Omniverse.
Nvidia is really building a very lucrative flywheel around its hardware chip business with software platforms, which should continue to increase Nvidia’s gross margin and profits over time.
This all explains why Huang calls Omniverse the company’s biggest graphics opportunity. For now, investors should consider investing in Nvidia on the merits of its data center and gaming business, while keeping a close eye on the growth of the professional visualization segment. It could be a neglected catalyst for growth.
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John Ballard has no position in the stocks mentioned. The Motley Fool owns shares and recommends Nvidia and Roblox Corporation. The Motley Fool has a disclosure policy.
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