NVIDIA’s Value-Added Platforms Drive Its Earnings to New Highs



NVIDIA’s success story

NVIDIA (NVDA) has reported strong earnings growth over the last three years as its GPU (graphics processing unit) strategy has been delivering strong returns.

The company’s revenue rose 41%, its operating income rose 63%, and its EPS rose 61% on a YoY (year-over-year) basis in fiscal 2018. Its profit rose faster than its revenue as its platform model improved its operating efficiency and enabled it to charge a higher ASP (average selling price) for its technology.

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Role of value-added platforms

In NVIDIA’s platform model, the company invests 90% of its research and development expenditure on developing single general purpose GPU architecture and the supporting CUDA software. It then leverages the design across its four largest value-added platforms: GeForce for gaming, Tesla for data center, Quadro for professional visualization, and DRIVE for automotive.

Each value-added platform has a GPU line-up that caters to high-, mid-, and low-end customers. Within each platform, NVIDIA is further segmenting its products to expand its revenue streams and increase its returns while making minimal investments.

For instance, NVIDIA has introduced Max-Q technology, which brings desktop GeForce GPU performance to notebooks. It introduced the Volta-based Titan V consumer-grade GPU to give AI researchers access to supercomputing performance on their PCs.

NVIDIA explores new platforms

NVIDIA is also exploring new platforms on which AI can make a significant difference, such as healthcare and manufacturing. At the 2018 GPU Technology Conference, NVIDIA unveiled its Clara platform for medical imaging and its Isaac platform for manufacturing. However, these platforms are still in development and have yet to be reflected in NVIDIA’s earnings.

In fiscal 2019, NVIDIA could see competition picking up from Google (GOOG) with its tensor processors built for AI, Intel (INTC) with its Mobileye visual processors in autonomous driving, and Advanced Micro Devices (AMD).

In this series, we’ll see how value-added platforms will drive NVIDIA’s earnings in fiscal 2019.

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