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Nvidia's Stock Pops on "Ray Tracing" Technology Reveal

Benjamin Rains
Kinder Morgan (KMI) delivered earnings and revenue surprises of 5.00% and -3.11%, respectively, for the quarter ended September 2018. Do the numbers hold clues to what lies ahead for the stock?

Shares of Nvidia NVDA climbed over 2.2% on Tuesday morning as investors begin to realize that the company’s brand-new ray tracing technology is poised to alter the growing multibillion-dollar video gaming industry for good.

Nvidia’s stock rebounded in a big way following Monday’s nearly industry-wide technology sell-off, and today’s move seems to stem almost entirely from the graphics chip giant’s announcement yesterday at the Game Developers Conference.

Lifelike Video Games

Nvidia’s new RTX ray tracing technology has been in the works for nearly a decade and aims to bring movie-quality graphics and images to the real-time world of video games. RTX runs on Nvidia’s Volta architecture GPUs and will be supported by an array of interfaces. The company also partnered directly with Microsoft MSFT to ensure its ray tracing tech is compatible with Microsoft’s new ray tracing API.

“Real-time ray tracing has been a dream of the graphics industry and game developers for decades, and Nvidia RTX is bringing it to life,” Nvidia SVP of content and technology, Tony Tamasi, said in a statement. “GPUs are only now becoming powerful enough to deliver real-time ray tracing for gaming applications, and will usher in a new era of next-generation visuals.”

The movie industry has had the ability to use ray tracing technology for years to create lifelike images and scenes in pre-rendered, pre-determined sequences. But until now, the gaming industry has lacked the processing power to create the realistic shadows, reflections, and refractions in the real-time interactive world of video games that moviegoers have come to expect.

Nvidia’s new RTX technology has the potential to change the video game industry forever. Once gamers see the possibilities of lifelike graphics they might find it hard to accept anything less. The company’s new ray tracing tech could also prove vital in the growing virtual reality space.

Investors should also understand that video games are a truly massive and expanding industry. The global games market is expected to be worth $143.5 billion a year by 2020, according to a report from market research firm NewZoo.

Bottom Line

Our current Zacks Consensus Estimates are calling for Nvidia’s Q1 sales to soar by 50%, while its earnings are expected to surge over 76% to hit $1.50 per share. Nvidia is also currently a Zacks Rank #1 (Strong Buy) and sports a “B” grade for Growth in our Style Scores system. These factors might entice investors to buy Nvidia in the short term.

But today’s real takeaway should be that Nvidia’s brand-new ray tracing tech will allow game makers and developers to create movie-like graphics for the first time. And once gamers see the results, this could help propel Nvidia to new heights for years to come.

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