NVIDIA (NASDAQ: NVDA) stock has returned 80.1% so far in 2017, through Dec. 15, continuing its rapid rise that began last year, when the stock returned a whopping 227%.
Continue Reading Below
The stock's strong run is being fueled by the graphics-chip maker's superb financial results, which are being driven by the company's transformation from being simply a successful maker of graphics processing units (GPUs) for computer gaming to also being a major player in GPUs for artificial intelligence (AI) applications ranging from data centers to driverless cars to drones.
Let's look at NVIDIA's major achievements of 2017. The products launched this year should help propel the company's financial and stock-price performances in 2018 and beyond.
1. Stellar stock performance
First, here's how NVIDIA stock's return so far in 2017 compares with the returns of select competitors -- Advanced Micro Devices, or AMD, and Intel -- a major semiconductor index, a notable semiconductor exchange-traded fund (ETF), and the S&P 500.
2. Superb financial performance
Continue Reading Below
Here's a look at NVIDIA's revenue, earnings per share (EPS), and free cash flow (FCF) growth over the first three quarters of fiscal year 2018, which began on Jan. 30, 2017.
EPS is growing faster than revenue, which means that NVIDIA's profit margin is expanding. An expanding profit margin shows pricing power, and is often a sign that a company has a robust competitive advantage. Indeed, NVIDIA is the leader in graphics cards for computer gaming, and it's currently the only game in town for entities that want to use a GPU-based approach to accelerate high-performance computing (HPC) and deep-learning. (Deep learning is a category of AI that basically trains a machine to make inferences from data like we humans do.)
That said, chip behemoth Intel -- which recently poached AMD's former head of graphics -- has signaled its intent to enter the discrete GPU market, so NVIDIA can expect competition in the deep-learning GPU space.
Notice in the chart that FCF growth is exceeding EPS growth. This is impressive given that NVIDIA has been investing considerable cash in recent years in growth initiatives, primarily related to AI. "Earnings" are just an accounting measure, whereas changes in cash more accurately show how a business is performing.
3. Completed roll-out of Pascal-based gaming GPUs (March through Nov.)
Throughout 2017, NVIDIA completed its roll-out that it began in 2016 of its Pascal-based graphics cards for gaming:
- March: Enthusiast-level GeForce GTX 1080 Ti.
- April: Enthusiast-level TITAN Xp -- technically made as a compute card, but gamers wanting top-of-line have also grabbed it up.
- May: Entry-level GeForce GT 1030.
- Nov.: GeForce GTX 1070 Ti, which fills a slot between the company's high-end GeForce GTX 1080 and 1070 GPUs.
In the third quarter, NVIDIA's gaming revenue jumped 25% from the year-ago period to account for 59% of the company's total revenue. Gaming's growth is being driven by the continued strong adoption of the company's Pascal-based GeForce cards, which in turn is being driven by the high-quality video game content that's been coming out and the soaring popularity of esports.
4. Jetson TX2 launch (March)
In March, NVIDIA unveiled Jetson TX2, which is a credit card-sized platform that brings AI computing out of the data center and into "edge devices" -- such as robots, drones, and smart cameras for cities. The platform uses NVIDIA's Pascal GPU architecture.
This is the third-generation of the Jetson platform, which was first introduced in 2014. NVIDIA touts that Jetson TX 2 provides twice the performance of its predecessor, which results in edge devices with higher accuracy and faster response times for tasks like image classification, navigation, and speech recognition.
5. Volta GPU architecture & Tesla V100 accelerator for data center launches (May)
In May, NVIDIA announced its mighty next-generation GPU architecture, Volta, along with its first product based on Volta, its Tesla V100 accelerator for data centers. NVIDIA fully ramped production of this product in the third quarter.
All of the world's major internet companies and cloud-service providers -- including Amazon, Facebook, Google, IBM, Microsoft, and Chinese tech giants Alibaba, Baidu, and Tencent -- are upgrading their data centers from NVIDIA Pascal-based systems to Volta-based ones. Major server makers are also incorporating Tesla V100 into their products. Driven by the success of Tesla V100, NVIDIA's third-quarter data-center revenue soared 109% from the year-ago quarter to account for 19% of the company's total revenue.
Volta is NVIDIA's first GPU architecture that is optimized for deep-learning inferencing, as well as deep-learning training. Inferencing involves machines applying what they've learned via their training to new data.
6. Isaac robot simulator launch (May)
Also in May, NVIDIA launched the Isaac robot simulator, which uses advanced video game and graphics technologies to train robots in simulated real-world conditions before they get deployed.
7. Gaining market share in discrete GPUs (Q3)
The discrete GPU market is rapidly expanding. Shipments during the calendar third quarter jumped 29% from the second quarter and rose 21.5% from the year-ago period. Moreover, NVIDIA is gaining market share. In the third quarter, its share of this market increased to 72.8%, with rival AMD holding the remaining 37.2% share, according to Jon Peddie Research. By comparison, NVIDIA held shares of 69.7% and 70.2% in the second quarter of this year and in the year-ago quarter, respectively.
8. DRIVE PX Pegasus platform unveil (Oct.)
In October, NVIDIA unveiled the world's first AI supercomputer for powering fully autonomous vehicles. The system, called Pegasus, extends the company's DRIVE PX AI car computing platform to handle Level 5 driverless vehicles. Pegasus will be available to NVIDIA's automotive partners in the second half of 2018, which will should rev up their driverless vehicle development efforts.
NVIDIA's auto platform generated just 5.5% of its total revenue in the third quarter, but the company is on track to profit nicely from the coming arrival of fully autonomous vehicles. More than 225 car and truck makers and others are developing with the DRIVE PX platform. The platform is used in all of Tesla's vehicles and in Audi's new 2018 A8. Toyota and Mercedes-Benz have adopted it for vehicles that are planned for launch within five years, and Baidu plans to use it in its self-driving vehicle initiatives.
9. TITAN V graphics card for AI developers launch (Dec.)
Earlier this month, NVIDIA introduced its Volta-powered TITAN V, what it calls "the world's most powerful graphics processing unit (GPU) for the PC." The monster of a graphics card -- with a price tag of $3,000 -- is targeted at developers working in the AI and high-performance computing fields. The company touts that TITAN V turns a PC into a supercomputer, and that it's more than 9 times more powerful than its predecessor, TITAN Xp, launched just eight months ago.
A strong foundation set for 2018 and beyond
The most important milestone for NVIDIA in 2017 was the launch of its powerful Volta GPU architecture. In 2018, investors can probably expect Volta to make its way into more of the company's products, including its graphics cards for gaming.
Find out why Nvidia is one of the 10 best stocks to buy now
Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. (In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the market!*)
Tom and David just revealed their ten top stock picks for investors to buy right now. Nvidia is on the list -- but there are nine others you may be overlooking.
*Stock Advisor returns as of December 4, 2017
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Baidu, Facebook, Nvidia, Tencent Holdings, and Tesla. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.