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Morningstar | Industry Headwinds Spare No Chipmaker - Not Even Nvidia as Firm Cuts 4Q Guidance by $0.5 Billion

Nvidia is a leading designer of graphics processing units that enhance the experience on computing platforms. The firm's chips are used in a variety of end markets, including high-end PCs for gaming, data centers, and automotive infotainment systems. Enterprise customers use Nvidia’s GPUs for professional visualization applications that require realistic rendering, including computer-aided design, video editing, and special effects. Nvidia has experienced initial success in focusing its GPUs in nascent markets such as artificial intelligence (deep learning) and self-driving vehicles. Hyperscale cloud vendors have leveraged GPUs in training neural networks for uses such as image and speech recognition.The linchpin of Nvidia’s current business is gaming. PC gaming enthusiasts generally purchase high-end discrete GPUs offered by the likes of Nvidia and AMD. Going forward, we expect the data center segment to drive most of the firm’s growth, led by the explosive artificial intelligence phenomenon. This involves collecting large swaths of data followed by techniques that develop algorithms to produce conclusions in the same way as humans. As Moore’s law-led CPU performance improvements have slowed, GPUs have become widespread in accelerating the training of AI models to perform a task. However, we think other solutions are more suitable for inferencing, which is the deployment of a trained model on new data. Today’s basic variants of AI are consumer-oriented and include digital assistants, image recognition, and natural language processing.The firm views the car as a “supercomputer on wheels.” Although this segment currently contributes relatively little to the top line, we acknowledge the opportunity Nvidia has to grow its presence in cars beyond infotainment as drivers seek autonomous features in newer vehicles. Looking further, Nvidia's Drive PX platform is a deep learning tool for autonomous driving that is being used in research and development at more than 370 partners. Nonetheless, both the data center and automotive spaces are fraught with competition that could limit Nvidia’s future growth.