This month we undertake a quick review of NVIDIA, a company we believe is one of the most important in the future of the global economy. Without getting too technical, NVIDIA is one of the world’s largest producers of Graphic’s Processing Units or GPU’s.
What’s a GPU? Some say GPU’s are the soul of a computer, whereas the traditional CPU is the brains. Where CPU’s work through a series of tasks by calling up information from a hard drive, GPU’s break complex problems into millions of simple ones to work them out at once. What does this mean? It means they can drive substantially faster processing power as well as making them ideal for graphics which requiring rendering to occur immediately.
NVIDIA designs these GPU’s with a particular focus on four key markets: gaming, professional visualisation, data centres and automotive uses. Their key competitors in the sector include the likes of Intel and Qualcomm among others. One of the more interesting uses is the parallel processing capabilities between computers that GPU’s allow, which drives the processing capabilities of super computers used by researchers and scientists to solve complex problems.
The company was founded in 1993 but a couple of Sun Microsystems engineers, Chris Malachowsky, Curtis Priem and Jensen Huang, a Taiwanese American. It currently employs over 11,000 people and has a market capitalisation of over US$150bn. The company is seeing substantial growth from the increasing use of its chips in motor vehicle guidance as well as the automation of factors all around the world. This processing power is also key to powering the likes of internet of things, connecting your fridge to your WiFi for example, and the 5G networks expanding all over the world.
The company is by no means cheap, having returned 80% over the last 12 months and currently trading on a P/E multiple of 67 times. Yet their business remains inherently strong, as one of just a few players in the sector, seeing Q3 results 14% above consensus. The companies market position affords strong margins, 63.6% in Q3 up from 59.8% in the previous quarter and delivered a profit of
$899m from $3.0bn in quarterly revenue. One of the great opportunities lies in the huge growth in the transport sector, a market expected to grow to $69bn by 2029.
NVIDIA truly is one of the standout companies of the future.