Nvidia’s Trillion Dollar Dreams
Chipmaker’s strong lead in electronic games and data centers doesn’t let off the pressure
By Dan Gallagher
Heard on the Street
Wall Street Journal
March 23, 2022 11:13 am ET
The challenge with being Nvidia NVDA -2.28% these days is that billions of dollars just isn’t that cool anymore.
The ascendant chip maker used to cite its addressable markets in that denomination, which was befitting for a company generating less than $5 billion in annual revenue, mostly from graphics processors used by PC gamers.
But Nvidia’s business has grown more than fivefold since those days, with its chips now being snapped up for everything from game consoles to data centers to self-driving cars. Such growth demands the company’s ambitions be upscaled as well; Nvidia told analysts Tuesday that it now sees a total addressable market of $1 trillion for its growing line of chips and related software.
Tech companies routinely broadcast lofty views of their potential, but Nvidia has particularly good reasons to aim high. Even with an 11% correction since the start of the year, Nvidia’s market capitalization of about $655 billion is well above that of any other chip company.
It is also about 12% above that of Facebook -parent Meta Platforms, which has more than four times its annual revenue. A not-inconceivable 55% rally would put the company’s market capitalization above the $1 trillion threshold. This is a stock that more than doubled in value in each of the last two years and gained 77% the year before that.
Fortunately, many things are going Nvidia’s way. Tech giants such as Amazon, Microsoft and Google continue to pour billions into their networks to satisfy growing demand for their cloud computing services, while Facebook’s parent is planning a 66% jump in capital spending this year to start building on its founder’s metaverse dreams.
Market-research firm Dell’Oro Group projects total data center capital expenditures to rise double digits this year, while analysts see Nvidia’s data center segment revenue growing by 52% for roughly the same period. And that won’t even include the company’s first Arm-based central processor for servers, which Nvidia said on Tuesday that it plans to start shipping in 2023.
But Nvidia will have to go beyond its two core markets of videogaming and data centers to maintain its position at the top ofthe chip stack. The company raised hopes for its automotive segment Tuesday, predicting an “inflection ” in the latter half of this year. This business has remained a low single-digit contributor to the company’s overall revenue base. Analysts now expect sales to jump more than 30% annually over the next two years—topping $1 billion for the fiscal year ending January of 2024, according to FactSet.
Nvidia’s long-running work in artificial intelligence has also created a vast library of software assets on which it is now looking to capitalize. The company ultimately sees a $300 billion market licensing its software to businesses building up their own AI capabilities and for its “Omniverse” technology— Nvidia’s preferred term for the metaverse. Analyst Chris Caso of Raymond James called software a “catalyst for future gross margin expansion” for Nvidia, which already has the third highest gross margin on the PHLX Semiconductor Index, according to data from S&P Global Market Intelligence.
Nvidia certainly has big dreams. Its track record of actually delivering big makes them harder to dismiss.
Nvidia’s Trillion Dollar Dreams - WSJ |
