Nvidia: Dominating GPUs Benefits More Than Just Gamers
Nvidia has benefited from the crypto-mining boom, but has set itself up for continued success beyond blockchain.
Nvidia has been on an absolute tear. The company has been the market leader in the Graphics Processing Unit (GPU) space for about 10 years now, and currently holds 72.8% of the discrete desktop GPU space. [1] The stock price did not take off until 2016, when the stock price increased by 228%. The stock price has continued to rise, although at less astonishing rates (81% in 2017 and 23% YTD in 2018). [2]
What happened?
There are a few key trends driving this demand. First, and most core to Nvidia’s traditional business, the gaming segment is on the rise. The global gaming industry generated just shy of $100B in revenue in 2016, representing an 8.5% growth over the previous year. [3] Nvidia doesn’t make graphics processors for gaming consoles, but what many don’t realize is that PC gaming is a bigger market than console gaming (especially internationally). The rise of eSports has encouraged this trend as well.
Another trend on which Nvidia has been able to capitalize is the crypto-mining boom. The recent explosion in bitcoin and other crypto prices has made mining profitable again. (At lower prices it was difficult, if not impossible, to recoup the setup and energy costs required to mine without purchasing specific mining hardware.) GPUs, due to different hardware architecture, are more efficient at mining than traditional processors (CPUs). Demand for Nvidia GPUs is so high now that retailers are selling the top-end consumer GPU for over $1,000, more than 40% over MSRP. [4]
Though it is impossible to break down Nvidia consumer GPU sales by intended purpose, analysts suggest that much of the Nvidia’s 39% growth in GPU shipments in 2017 is a result of this boom. Nvidia seems to agree with this estimation and has even asked retailers to focus on selling cards to gamers over miners. [5] GPU manufacturers are unable to increase supply significantly due to memory shortages further up in the supply chain. This inflated demand, though undoubtedly beneficial to Nvidia, is a tenuous proposition as Nvidia does not want to depend on the crypto-mining industry for sales.
How has Nvidia responded to this success?
Nvidia has taken advantage of recent success to make significant efforts into areas where GPU-style architecture is advantaged over CPUs, setting up a path to continued success. What makes GPUs so efficient in mining is their ability to parallel process a number of simple tasks, which lends the technology to a number of novel applications. Nvidia is developing solutions for machine learning, VR, artificial intelligence, and autonomous vehicles. The company’s Nvidia Drive platform partners with OEMs such as VW, Mercedes-Benz, Audi, Tesla, and Volvo, as well as Tier 1 suppliers and leading research institutions such as Berkeley, Stanford, MIT, and Carnegie Mellon. Partnerships with Nuance and GE are intended to leverage AI to improve healthcare. Nvidia is even participating in the U.S. Government’s Cancer Moonshot, along with leading national laboratories.
Financial analysts seem to believe that a pop in the bitcoin bubble would spell trouble for GPU manufacturers like Nvidia, but it seems that, though there may be an initial dip in desktop-GPU sales, the company has set itself up for continued success moving forward.
[1] https://wccftech.com/nvidia-amd-discrete-gpu-market-share-report-q3-2017/
[4] https://pcpartpicker.com/trends/price/video-card/
[5] https://www.polygon.com/2018/1/23/16921356/nvidia-graphics-cards-sold-out-cryptocurrency-miners
Nvidia has definitely been a big winner recently, but I’m somewhat skeptical that it can continue such impressive dominance in providing hardware for cryptomining and AI. Most chip manufactures at this point have set themselves up to take away their market share, especially Intel. Samsung just announced that they are creating a chip specifically for cryptomining. In my opinion, Nvidia benefited greatly from the silicon architecture of GPUs in general, but I see innovations in that architecture from other companies beginning to nip at their heels. Time will tell!