What Is Ray Tracing, and Why Should NVIDIA Investors Care?

When graphics processing unit (GPU) maker NVIDIA (NASDAQ: NVDA) reported second-quarter 2018 results, concerns about slowing growth stole the headlines once again. This time, the slowdown was caused by the sudden disappearance of the company's cryptocurrency mining business, a big contributing factor to 2017's successful campaign.

Not to worry, though. NVIDIA is readying a new graphics technology that could help it establish a new sales outlet and keep that growth machine chugging along. It's called ray tracing, and while video gamers have been excited about its emergence for a while, here's why it matters to investors.

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What is ray tracing?

Computer-generated graphics have improved by leaps and bounds over the years, and NVIDIA thinks ray tracing will be the next big breakthrough. While many games look pretty realistic, one thing holding them back from true life-like images (like what you see at the movies) has to do with light.

That's because video games operate in real-time interactive worlds, with no two experiences being identical. Thus, game developers render light using a method called rasterization. In layman's terms, it's a shortcut that renders 3D objects as two-dimensional pixels, then shades them based on lighting in the game. It cuts down on the need for massive computing power and has gotten pretty good at rendering high-quality images.

Ray tracing does away with rasterization, though, and instead uses the same technique our eyes and brain use to render what we see in the real world. Light hits 3D objects and creates shadows, reflections, and refractions, altering the colors that we see and the intensity of light in different areas of an environment. The use of 3D objects and their actual interaction with a beam of light takes a lot more computing power, especially in real-time. NVIDIA is accomplishing it with artificial intelligence (AI) powered by dedicated processors built into its new GPUs.

What will it do?

NVIDIA says its new GPUs with ray tracing ability are its biggest breakthrough in a decade. They've dubbed the architecture for these new chips "Turing," which will be the foundation for a new line-up of NVIDIA's products going forward.

These new GPUs will power next-generation video games, ones that NVIDIA thinks will rival the best artistic work as seen at the movies. That's good news for gamers, but the capabilities of these small cards could also help open up the visual effects industry that's used extensively in Hollywood these days.

Why does it matter?

Gaming is still growing, and live e-sports are especially on the rise as an emerging spectator event. Ray-tracing GPUs could help bridge the gap between the real and the digital, while better graphics could help attract more users of video games over time.

The really interesting use for ray tracing is show business, though. NVIDIA says the visual effects industry generates $250 billion a year. However, those familiar with visual effects know that ray tracing has been a part of the process for a while already.

Today, digital artists take their time creating scenes and tap the computing power of a server or "rendering farm" to create special effects and computer-generated scenes. The process is expensive (think tens of thousands of dollars, or more, for just a scene), and it can take days or weeks to complete.

NVIDIA's work on GPUs that can handle ray tracing could be a disruptor of that industry, saving filmmakers time and money. It could also open the door for artists to become entrepreneurs in the space once again, putting the heavy-duty computational powers of a server into a compact and affordable package. For investors, though, it means NVIDIA could have found yet another new application for its GPUs. NVIDIA is on pace to easily surpass $12 billion in revenue this year. Entering the $250 billion visual effects industry could go a long way towards unlocking more growth in the near future.

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Nicholas Rossolillo owns shares of Nvidia. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool has a disclosure policy.