NVIDIA Has Its Eye on Smart Cities in China with New Alibaba Partnership

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NVIDIA Corporation's (NASDAQ: NVDA) artificial intelligence (AI) prospects have continued to grow as the company uses its GPUs to build self-driving car hardware and software, smart cloud computing systems, and deep learning training for servers.

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But the company has a lot of potential in the growing smart city segment as well and took another step in that direction this week when China-based Alibaba (NYSE: BABA) said it would partner with NVIDIA to use its smart city platform, called Metropolis.

The partnership adds to the already 50 other major tech companies that are using NVIDIA's platform and could help NVIDIA tap into one of the largest smart city markets on the planet: China.

What Metropolis is and why investors should care

Metropolis, which was just launched back in May, is NVIDIA's cloud platform that sifts through surveillance and traffic camera video using artificial intelligence to manage traffic, parking, law enforcement, and other city services.

Metropolis uses several NVIDIA technologies -- including Tesla GPU accelerators, deep learning software, and the company's DGX-1 cloud-based supercomputers -- to comb through the vast amount of data collected by a city's security and traffic cameras and make decisions based on what it sees. The platform can monitor video in real-time and view data in video recordings up to 30 times faster than humans can in some cases.

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NVIDIA believes that 1 billion cameras will be in service in cities around the world by 2020 and that Metropolis' artificial intelligence will be the brains behind those cameras, allowing local governments to reduce traffic and crime and increase efficiencies block by block. (Admittedly, an AI system that monitors everything citizens are doing in public does sound a little bit creepy.) 

NVIDIA believes its total addressable market in the smart city space will reach at least $2 billion by 2021, and teaming up with Alibaba might help the company's prospects even more. 

Why NVIDIA's partnership with Alibaba is important

Alibaba's cloud services are already an integral part of creating smart cities in China. The city of Hangzhou -- home to millions of people and Alibaba's headquarters -- has already started using Alibaba's artificially intelligent cloud computing services to help manage vehicle and pedestrian traffic. The system is called Hangzhou City Brain, and if all goes well in that city it could be expanded into more cities across China. 

Simon Hu, the senior vice president of Alibaba Group and president of Alibaba Cloud, said last month that "Alibaba Cloud's big data and deep learning technologies have been helping to build 'city brains' in China to help local governments effectively make management decisions." 

The benefit for NVIDIA in working with Alibaba on smart cities is that China is expected to have 500 cities with some level of connectivity by the end of this year, far more than any other country. Not all of those cities use Alibaba's cloud services, of course, but by partnering with Alibaba NVIDIA opens itself up to tap into China's burgeoning smart city market.

Looking ahead

NVIDIA is positioning itself in the smart city space now for what could become a $3.4 trillion market by 2026. Metropolis and NVIDIA's partnerships are just getting off the ground right now, but the company already used its software and hardware to begin dominating other AI segments, and there's no reason why it can't do the same with smart cities.

America lags behind China's smart city plans, so I think investors should keep a close eye on what the company is doing with Alibaba and other China-based tech companies to see if NVIDIA can create more opportunities in China. Investors also need to be patient as NVIDIA's smart city opportunities materialize. We're only at the beginning stages of using AI to improve traffic, pedestrian safety, and law enforcement -- but it's clear NVIDIA sees this as a huge opportunity to capitalize on its AI hardware and software. 

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool has a disclosure policy.