NVIDIA's (NASDAQ: NVDA) video gaming and data center businesses led to massive top- and bottom-line growth last quarter, but there was another positive development that investors might have missed. The graphics specialist's professional visualization business has started showing signs of life after failing to take off in recent quarters.
It won't be surprising if this segment starts playing a bigger role for NVIDIA given the company's recent product development moves. But before looking ahead, investors should understand why professional visualization hasn't lived up to its potential so far.
Image Source: Getty Images.
Professional visualization (pro-v) accounted for nearly 15% of the company's total revenue just over two years ago, but its importance has waned as it now supplies just 9% of total revenue. That's because the pro-v business hasn't grown as fast as video gaming or data center even though the pro-v business should have taken off big time because of catalysts such as virtual reality (VR). The Quadro-branded GPUs that NVIDIA sells through the pro-v business are supposed to help creative professionals engaged in verticals such as content creation, design, and engineering to execute complex tasks easily.
NVIDIA made a play for this market last year by launching Pascal-based Quadro GPUs, and advertised them as "VR ready" since they were supposed to help users create content at a faster pace when compared to central processing units.
The global VR content creation market is growing at almost 90% a year, according to one estimate. This means that demand for the hardware needed to create that content is also growing.
NVIDIA's pro-v revenue jumped nearly 20% year over year during the second quarter, following a 22% annual increase during the first one. A longer-term look shows the pro-v business has been gaining momentum over the past year, indicating that the Quadro graphics cards are finally finding some traction.
Data Source: NVIDIA quarterly report. Chart by author.
It won't be surprising if NVIDIA manages to maintain this momentum as it will soon launch new and more powerful professional graphics cards based on the latest Turing architecture.
Enter the new Quadro
NVIDIA's latest Quadro GPUs could be a game-changer thanks to the technology they are packing. Of course, they perform faster and consume less power than the previous-generation offering. But the biggest highlight of the new professional-grade graphics cards is that they come with ray-tracing, a rendering technology that can produce life-like graphics with attention to details such as reflections and shadows.
NVIDIA says that this is the first time that a GPU is capable of ray-tracing, and that could be a solid plank on which the company can market the new cards. NVIDIA claims that "designers and artists can interact in real time with their complex designs and visual effects in ray-traced photo-realistic detail" thanks to this new technology.
This could help NVIDIA's GPUs gain more traction in the fields of automotive and architectural design, video content creation, and scientific simulations.
More importantly, NVIDIA now has an upper hand over rival Advanced Micro Devices (NASDAQ: AMD), which has been making waves with its Radeon Pro graphics cards. NVIDIA's rival scored a major win last year when Apple decided to use the Radeon Vega Pro 56 and the Radeon Vega Pro 64 GPUs in the iMac Pro, Cupertino's first workstation that's aimed at professional users. Apple displayed a variety of use cases for the iMac Pro, which included designing a car with the help of a VR headset.
But the AMD Radeon Pro doesn't offer ray-tracing technology yet, and this could tilt the balance in NVIDIA's favor once the new Quadro GPUs go on sale in October.
Gearing up for a boost
NVIDIA's pro-v business is no more a laggard, and the warm response that its new professional-grade cards have received indicates that things will only get better. Workstation manufacturers such as Dell, Hewlett-Packard Enterprise, and Lenovo, which are the top three PC sellers in the world, are likely to deploy devices using the new Quadro GPUs.
Moreover, the new technology that NVIDIA is now packing with these GPUs could boost their adoption in VR content creation, setting the chipmaker on its way to tap a fast-growing market that has the potential to increase its sales in a big way.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Nvidia. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.