NVIDIA stock: Why NVIDIA boss Huang is now fully committed to the Metaverse hype

by Klaus Schachinger, Euro on Sunday

Dhe largest takeover in the chip sector failed over the major hurdles set by the competition authorities. Japan’s private equity group Softbank, owner of British ARM Holdings, and graphics chip developer NVIDIA, the buyer, canceled the deal in a joint statement.

Due to the particularly low energy consumption, ARM’s blueprints are the dominant standard worldwide for chip design in cell phones and all other mobile devices as well as in the Internet of Things, i.e. Internet-enabled components and devices other than cell phones and tablets. Because many technology and chip companies use these blueprints, the British are the “neutral Switzerland” of the industry. Competition watchdogs and important customers of ARM owned by NvNVIDIA idia no longer saw this status as guaranteed.

With the takeover, the British NVIDIA should provide faster access to the Internet of Things and pave the way to new chip markets in the future computer-like inner workings of cars. Jensun Huang, founder and CEO of the group from Santa Clara in California, has successfully transferred the technology of the developer of graphics chips, which can process very large amounts of data in a short time, to other markets: chips for network computers, artificial intelligence (AI), driver assistance systems and autonomous driving – also using the architectures of ARM.

In September 2020, NVIDIA offered Softbank $12 billion in cash plus 19 million of its own shares for the British, at that time a total of almost $40 billion.

ARM is now scheduled to go public

Now Softbank intends to put the chip designer on the floor in the new fiscal year, which begins in April. From January to September 2021, ARM generated almost $1.5 billion in licenses and other income, a good 60 percent more than in the same period last year. During this period, 13.7 billion chips with ARM blueprints were shipped worldwide. Pierre Ferragu, an analyst at US investment bank New Street Research, estimates ARM’s market value at an IPO this year at $45 billion. That’s 23x estimated 2021 revenue. Softbank paid 21x in 2016.

The Japanese will retain NVIDIA’s $1.25 billion down payment and the Californians a 20-year license to ARM’s technology. Visionary Huang takes the setback for his big plans in a sporty way. NVIDIA will continue to work closely with the British. With Softbank’s investments, ARM has expanded its technology into markets beyond “supercomputing, cloud, AI and robotics,” Huang praised the owner. ARM’s chip architecture will be the most important of the next decade, predicts the electrical engineer.

NVIDIA’s prospects are intact

More and more companies and large cloud service providers such as Apple, Amazon, Alphabet and IBM are using artificial intelligence algorithms in their data centers that evaluate large amounts of data in a short time.

NVIDIA’s graphics chips are perfect for this. With software platforms for their chips in network computers, the Californians are keeping competitors like Intel and AMD at a distance. Partnerships with software giants like Microsoft and VM Ware, developers of simulation platforms for additional computing power, as well as hardware giants like Cisco, Dell and HP Enterprise, which use NVIDIA’s chips for AI, are also boosting business. Experts from the US stock exchange service Bloomberg estimate annual growth in NVIDIA’s data center segment at 50 percent in the near future.

What makes NVIDIA’s technology coveted in data centers is software and special chips that are used to transfer computationally intensive tasks in network computers from the central control chips, the microprocessors, to graphics chips. This relieves the microprocessors and makes the computers faster.

According to estimates, however, this technology is only used in ten percent of data centers worldwide. So Nvidia’s prospects are good. But even in premium vehicles, where language assistants and assistance systems are used for semi-autonomous and later autonomous driving, graphics chips pay off as a relief in data processing.

NVIDIA’s data center division is currently delivering just over 40 percent of its estimated $26.7 billion in 2021 revenue. This puts the division on par with the business for ultra-fast graphics chips for video games, which account for around 45 percent of sales. Analysts are expecting a fifth more sales and profits in the new financial year. NVIDIA can handle the canceled deal well. The 2021 balance sheet will be delivered on February 16 after Wall Street closes.

NVIDIA’s new avatar-based simulation platform Omniverse Enterprise, which is being tested by 700 companies worldwide, is also promising. According to NVIDIA, Omniverse can be used in many industries, from planning buildings to prototyping in car and aircraft construction. However, Nvidia has to assert itself here against established, strong providers such as Autodesk, Dassault or Nemetschek. The Omniverse Professional Visualization segment currently delivers eight percent of sales.

Booster Metaverse

However, should the Metaverse, the future version of the Internet, which is currently being praised by the Facebook parent Meta Platforms, Alphabet and Microsoft, prevail in the medium and long term, NVIDIA would be in this world in which users communicate via virtual avatars like in video games, with Omniverse expected to be at the forefront. Analysts at the US bank Wells Fargo trust the computer game-experienced company in the Metaverse to generate ten billion dollars in sales in five years.

Relief: Investors obviously expected the takeover to fail. The share price therefore rose moderately.

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