Recently, analyst Trip Chowdhry of Global Equities Research wrote in an investor note that Wal-Mart Stores (NYSE: WMT) will ramp up its focus on deep neural networks for its OneOps cloud business and that the retailer will tap NVIDIA's (NASDAQ: NVDA) graphics processing units (GPUs) to make this happen.
Deep neural networks are used in artificial intelligence processing to allow computers to understand the relationships between pieces of information without having to be specifically programmed to understand that the information is related. Deep neural networks, and the broader deep learning segment, are part of a growing artificial intelligence market.
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Chowdhry thinks the ramp-up of Wal-Mart's cloud will happen over the next six months and will be "incrementally positive" to NVIDIA's GPU business. These rumors come after reports surfaced in June that Walmart was asking some of its technology customers to move off of Amazon's Web Service (AWS) cloud business. Chowdhry thinks the Wal-Mart cloud, running on NVIDIA's GPUs, will be one-tenth the size of AWS. If it pans out, this would be a significant move for the retail giant and could bring more GPU sales for NVIDIA.
Neither NVIDIA nor Wal-Mart has confirmed any of this yet, but if Wal-Mart is looking to bring more deep learning to its cloud business, it would make a lot of sense for it to use NVIDIA's processors. NVIDIA already powers some of Amazon, Google, and Facebook's deep-learning cloud businesses, and the company expects deep learning to become an even bigger part of its GPU sales in the coming years.
NVIDIA's deep-learning opportunity
While investors will have to wait and see if a Wal-Mart partnership pans out, there's still plenty of opportunity for NVIDIA in the deep-learning space already. The company is specifically zeroing in on two segments of deep learning that will benefit from the company's GPUs: deep-learning training and deep-learning inference.
NVIDIA says deep-learning training is when a computer learns a new capability from existing data, and deep-learning inference is when it can apply the capability it just learned to new data -- and both come with loads of potential for the company.
The company is doing more than just projecting lots of opportunity in the deep learning markets, though. It already has a leadership position in the deep-learning training market, and Goldman Sachs analyst Toshiya Hari believes the company's GPUs are used in 90% of artificial intelligence (AI) training systems right now.
Additionally, NVIDIA said in its second-quarter fiscal 2018 report that it forged new partnerships with Microsoft, Google, Tencent, IBM, Baidu, and Facebook to help them bring new deep learning and artificial intelligence services online. It also announced plans to train 100,000 developers to use deep learning this year.
Why deep learning is important to NVIDIA
Aside from NVIDIA's deep-learning total addressable market, adding more of these customers is important, because the company's data center revenue segment (which includes GPU sales for deep-learning technologies) is becoming a larger part of the business.
In the second quarter, NVIDIA grew its data center revenue by 175% year over year to $416 million. The data center business segment now accounts for 18.6% of total revenue, up from 10.5% a year ago.
Even if Wal-Mart doesn't tap NVIDIA's GPUs for its own deep-learning push, NVIDIA is still forging ahead in this space. I've said before that NVIDIA's data center segment is a growing opportunity for the company -- and its investors -- and that NVIDIA is continually delivering on this potential. I wouldn't be surprised to see Wal-Mart sign on with NVIDIA soon, but even if it doesn't, investors should still be very optimistic about the company's deep-learning opportunities going forward.
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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Baidu, Facebook, and Nvidia. The Motley Fool has a disclosure policy.