Quick Thoughts: NVIDIA goes full AI headlining CES Keynote

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Quick Thoughts: NVIDIA goes full AI headlining CES Keynote

  • NVDA’s headlining of the show keynote, in a slot traditionally occupied by MSFT, INTC, or QCOM, is an affirmation of its leadership in AI
  • The announcement of the GeForce Now cloud could be very popular with gamers, especially those unable to upgrade to the newest PCs and pricing seems reasonable
  • Shield TV is a strong TV streaming device, driven by Google Assistant – the low cost Spot units allow for ubiquitous voice command functionality around the home
  • Nvidia Drive PX is the only off the shelf autonomous car computing platform – deals with Bosch and ZF should move NVDA systems into many more vehicles

The Consumer Technology Association awarded its Consumer Electronics Show opening keynote slot for the first time to NVDA, given the company’s leadership in GPUs and exposure to nearly all aspects of AI. The company’s blockbuster 2016 stock performance was likely also a consideration. The slot has been occupied by either Microsoft or Intel for decades. NVDA CEO and co-founder Jen-Hsun Huang opened this year’s edition of CES rocking his usual black leather jacket with what we believe are some impressive announcements in AI, gaming, and autonomous driving.

First, gaming is still very much the company’s core business, making up 57% of revenue over the last four quarters. The new GeForce Now service allows gamers to access the latest high performance games by streaming them from Nvidia GPUs in cloud datacenters, in much the same way as enterprise users may access virtual PCs on platforms like AWS. NVDA estimates that there are 1 billion consumer PCs and MACs that do not have the GPU capability to run these games – GeForce Now gives them a virtual upgrade as long as they have access to broadband. The pricing seems reasonable at $25 for 20 hours, with some variability depending on specific performance needs, and we believe there could be a meaningful market for the service as long as latency doesn’t undermine the quality of the service (there are no tests or reviews as of yet). It is not clear how NVDA plains to host the service – it would seem logical for the company to work with a data center partner, like AMZN AWS or MSFT Azure.

Next, NVDA announced its updated Shield TV, which is now the first piece of third party hardware to feature Google Assistant. While the Shield TV is essentially an Android TV streaming box, the addition of Google Assistant puts it in competition with Amazon Echo and Google Home. Adding into the mix Nvidia Spot peripheral listening devices, which were also announced during the keynote, the Shield TV system is essentially a total home AI solution. Like Amazon’s Echo, multiple Spots can be strung around a home to ensure full coverage. Huang also indicated that a series of Spot speakers can use beamforming, in concert, to triangulate where in a room a voice command is given. The price point of Shield TV is near the Echo and Home at $199, while Spot mics will go for $49, in line with the Echo Dot.

Finally, Huang outlined his vision for autonomous vehicles and eliminating the “waste” posed by accidents, traffic, and parked vehicles – hinting towards a future of fleet vehicles. While NVDA already announced its Drive PX platform almost two years ago, Huang presented some new capabilities for inside the car and reading the driver via AI Co-Pilot. The system can essentially track driver engagement and distinguish when a driver is distracted, as well as take commands via lip reading, which can ensure the system listens to a “driver in command.” NVDA’s Drive PX is the only off the shelf autonomous driving hardware and is powering the autonomous efforts of nearly every automaker including Tesla, Audi, and Ford. While Huang announced a partnership with Audi to bring level 4 autonomy to the marketplace by 2020, the bigger news was partnerships with major auto suppliers Bosch and ZF, which could bring NVDA hardware to nearly every vehicle make.

NVDA has reaped first mover advantage across several high growth/high potential AI-hardware markets, where we expect it will maintain and defend its leadership. We remain confident in the name and are maintaining it in our model portfolio.

©2017, SSR LLC, 225 High Ridge Road, Stamford, CT 06905. All rights reserved. The information contained in this report has been obtained from sources believed to be reliable, and its accuracy and completeness is not guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein.  The views and other information provided are subject to change without notice.  This report is issued without regard to the specific investment objectives, financial situation or particular needs of any specific recipient and is not construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results.

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