NVIDIA Teams with Facebook - The Cloud Shows More Upside

May 15, 2017 - By: Ophir Gottlieb

Written by Ophir Gottlieb

This article is a snippet from the original published to CML Pro members on 5-14-2017.


Nvidia Corporation (NASDAQ:NVDA) is a Spotlight Top Pick for CML Pro. We added the company on January 2nd, 2016 to Top Picks for $32.25. The stock is now trading at $135, up 318%.

But, as we noted in the two recent dossiers on Nvidia, we see the upside, over the long-run, with more potential. The company crushed earnings, but more importantly, appears to be turning the cloud into a business that in and of itself could be larger than all of Nvidia is right now.

Here is Nvidia's revenue (in the blue bars) and net income (in the orange line) chart:

In our Earnings Review, we noted this phenomenon by taking bits and pieces from the earnings call apart.

We do believe there is plenty of upside left for this company in the coming years - and one stunning outcome from the earnings call was how quickly it is becoming apparent that Intel is in fact in trouble - Nvidia is coming after them in the cloud.

To date, Intel has about 99% market share in the cloud world with its CPUs. That will change, and it appears the change is coming sooner than anyone realized.

* Highlighting our record first quarter was a near tripling of data center revenue, reflecting surging interest in artificial intelligence. The 38% rise from Q4 marked its seventh consecutive quarter of sequential improvement. Driving growth was demand from cloud service providers and enterprises building training clusters for web services.

And then we noted Facebook:

* Working with Facebook, we announced the launch of the Caffe2 deep learning framework as well as Big Basin servers with Tesla P100 GPUs.

We want to turn to the opportunity with Facebook in more detail, now.

Nvidia Corporation and Facebook Inc

Facebook is managing 1.3 billion monthly active users on the Facebook proper app, alone. Add 700 million MAUs on Instagram, 1.1 billion in Messenger and 1.1 billion on WhatsApp, and the company in and of itself has the computing needs of a small country.

In order to turn those users into an advertising gold mine, Facebook Inc (NASDAQ:FB) has turned to artificial intelligence (AI). The idea is simple -- with as much as Facebook Inc knows about each user, combined with the type of activity each user has on the platform, it can essentially put people into buckets of various types of future behavior.

Who is likely to click on something, buy something, watch a video, share a video, share an advertisement, visit a site and how many visits take a purchase, how much it will cost in advertising to get that person to finally purchase, how long it will take. The answers and analysis are endless -- and each point makes the Facebook Inc platform more valuable.

But, all of that, every bit, relies on a machine learning engine, and that engine is driven by Nvidia Corporation (NASDAQ:NVDA).

Earlier this year Facebook Inc. revealed that it has employed NVIDIA's GPUs to power its next-generation GPU server called Big Basin.

Here is the low down straight from Nvidia:

Increasingly, the processing of lightning-fast AI services requires GPU-accelerated computing, such as that offered by Facebook's Big Basin servers, as well as highly optimized deep learning software that can leverage the full capability of the accelerated hardware.

As part of the companies' collaboration, the NVIDIA DGX-1 AI supercomputer will be the first AI system to offer Caffe2 within the optimized software stack for deep learning.

Source: Nvidia

And this staggering image comes from Nvidia as well:


The collaboration between Nvidia Corporation and Facebook Inc is in the early phases and will likely only get larger. As Facebook continues to grow, to collect click by click information and scale its enormous data collection process, so too will the scale of its needs for AI.

Markets and Markets forecasts that "[t]he artificial intelligence (AI) market is expected to be worth USD 16.06 Billion by 2022, growing at a CAGR of 62.9% from 2016 to 2022."

That is absolutely staggering growth and Nvidia is in the center of that storm.

The author is long shares of Nvidia Corporation (NASDAQ:NVDA) and has no position in Facebook Inc (NASDAQ:FB).


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