'AI at the Edge' is a strong growth driver for NVIDIA Corporation (NASDAQ:NVDA). NVIDIA stock is up 10x in the last three years.
GPU maker, NVIDIA Corporation (NASDAQ:NVDA) is in middle of a strong bullish rally. NVIDIA stock has returned around a massive 940% in the last three years. And the rally in the stock has not yet cooled off. NVIDIA has been one of the hottest stocks this year, delivering over 75% return. This strong rally has been driven by strong growth in revenues as well as huge growth potential. With the increasing adoption of artificial intelligence or AI, the demand for NVIDIA's GPU is only likely to increase from here. Apart from gaming, there are several new areas where NVIDIA GPUs are playing critical roles including datacenter and self-driving vehicles. One such area of growth opportunity is the fast-growing drone market or what NVIDIA calls 'AI at the Edge'.
A rapidly growing market.
According to a Bloomberg report, the World Drone market is set to see an exponential growth from $2B in 2016 to $127B in 2020. That's over 150X growth in under 5 years. And with the rise of AI, these drones will be expected to perform complex tasks. NVIDIA is looking to corner a greater share of this market, especially using its Jetson X2 platform.
NVIDIA last month signed two major AI deals in the drone space. The company has signed agreements with JD.Com and GE. The agreement with JD.Com, the second largest online retailing company in China, is for developing drones which can be used for agricultural, delivery and the rescue and search operations. JD aims to produce one million drones in the next five years. JD expects drones to reduce delivery cost by around 70%, especially in the far-flung rural areas which suffer from inadequate infrastructure which impedes overland delivery.
Jetson platform will drive 'AI at the Edge'
JD.com's innovation lab, JD X, has created two delivery vehicles, JDrone and JDrover. JDrover is a 4-wheeled robot that JD X is testing for so-called "last-mile deliveries" on college campuses. Nvidia's powerful Jetson platform will provide navigation intelligence to an aerial drone and to a ground-based drone, with the latter needing to negotiate uneven terrain. Jetson was selected due to its low power draw and low cost.
Earlier in March, NVIDIA unveiled the Jetson X2, "a credit card-sized platform that puts AI computing to work in the world all around us." According to the NVIDIA press release, "Jetson TX2 doubles the performance of its predecessor. Or it can run at more than twice the power efficiency, while drawing less than 7.5 watts of power." The Jetson X2 can either run 2 trillion floating point operations per second (FLOPS) at a power draw of 15 Watts or run a trillion FLOPS at less than 7.5 Watts. To put this into perspective, the X1, launched in November 2015, could run 1 trillion FLOPS at 10 Watts.
The second agreement is with Avitas Systems, a General Electric (NYSE:GE) venture. The purpose of the agreement is to combine AI, analytics, and drones to more efficiently undertake inspections of heavy industrial facilities, like oil rigs, where the installation is located in an inhospitable environment. Drones will shoot video of the installation, which will then be analyzed by AI computers to locate issues requiring attention, such as leaks and corrosion. The whole system is meant to enhance the capabilities of human inspectors. It also keeps them out of harm’s way. Nvidia and Avitas believe that the cost of plant inspections may be reduced through the use of drones by 25%.
Avitas is using NVIDIA's DGX-1 AI supercomputer for AI training and inferencing in the data center. It's also using NVIDIA DGX Station right at the inspection location for making inferences from the video and images obtained by the drones and other robots. The general manager of DGX Systems for NVIDIA, Jim McHugh, opined, "Using our latest DGX systems to help train robots and better predict industrial defects increases worker safety, protects the environment, and leads to substantial cost savings for companies."
Is NVIDIA stock headed towards $200 mark?
AI is likely to be the main growth driver for NVIDIA in the coming years. AI is finding application in several industries including drones or as NVIDIA calls 'AI at the Edge' and autonomous cars. With the AI technology still in nascent stage, there is a huge growth potential. AI already is a strong growth driver. The AI-driven data segment has been the fastest growing segment for NVIDIA. In the second quarter, the segment reported 175% YoY growth in revenues, from $151 million last year to $416 million, becoming NVIDIA's second largest revenue segment.
NVIDIA stock has received several price target upgrades due to its AI potential. Recently, Evercore ISI analyst CJ Muse upped his price target on NVIDIA stock to $250 from $180. He believes that NVIDIA has built an industry standard for AI systems which competitors will find difficult to replicate. NVIDIA stock remains a good long-term buy.
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