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Chart in Focus: NVIDIA’s Growth Drivers for 2017

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Aug. 9 2017, Updated 7:41 a.m. ET

NVIDIA key beneficiary of technology shift

Semiconductor stocks have generated buzz for quite some time as the technology industry enters its fourth major shift toward AI (artificial intelligence) and IoT (Internet of Things). IDC (International Data Corporation) forecasts cognitive and AI systems sales to increase 59.3% YoY (year-over-year) to $12.5 billion in 2017 and grow at an average annual rate of 54.4% over the next three years.

The company that would benefit the most from this shift is NVIDIA (NVDA), whose stock rose 190% over the past one-year period. Many analysts expected its growth momentum to slow, but the stock price hasn’t shown any signs of a slowdown so far. The rising stock price saw many analysts revise their price target for the stock every month or two.

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NVIDIA’s 2017 growth drivers

Several recent events drove NVIDIA stock to new highs in July 2017. The company witnessed a temporary spike in its mid- and low-end GPU (graphics processing unit) sales, driven by strong demand from cryptocurrency miners.

At the end of July 2017, semiconductor companies with exposure to the automotive market reported strong earnings. Xilinx (XLNX), Texas Instruments (TXN), and Cypress Semiconductor (CY) reported strong revenues for 2Q17, indicating growth momentum in the automotive space. NVIDIA’s next big growth driver after data center is self-driving vehicles, which according to the company’s estimates presents an $8 billion opportunity by 2025.

Rival Advanced Micro Devices (AMD) reported 19% YoY growth in revenues in 2Q17, indicating strong demand momentum. Nintendo reported strong growth in its Switch game consoles, which feature NVIDIA’s Tegra processor, indicating strong revenue from Tegra.

All these factors could result in better-than-expected revenues for NVIDIA in fiscal 2Q18 ended July 2017.

NVIDIA’s future growth drivers

NVIDIA’s revenue growth could accelerate in fiscal 2H18 as it launches its first Volta GPU on the Tesla platform for data center applications and integrates its DRIVE PX2 platform in Tesla’s (TSLA) cars. Moreover, the company has expanded its partnership with China’s search engine Baidu (BIDU) beyond the data center and into autonomous cars and home automation, which could drive future demand.

Looking at these growth drivers, several analysts have raised their price targets for NVIDIA to $200. In this series, we’ll look at the new growth drivers and their impact on the company’s financial and stock performance.

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