Fasten your seatbelts, gamers and investors, because Nvidia is about to take us on a wild ride with its latest AI-based solution for game developers. Say hello to Nvidia Avatar Cloud Engine (ACE), a groundbreaking technology that could change the way games are made and help Nvidia maintain its colossal lead over Advanced Micro Devices.
It’s a gamer’s dream come true
Remember when Nvidia revolutionized gaming with the 2018 launch of the GeForce RTX gaming GPUs? Those graphics cards used AI to render more realistic scenes, but now, Nvidia’s raising the bar even higher. With ACE, the company is using AI to add extra realism to in-game characters.
Imagine this: non-playable characters (NPCs) that use natural language models, like OpenAI’s ChatGPT, to respond intelligently to your dialogue choices. No more repetitive, scripted dialogues – just dynamic, immersive conversations consistent with each NPC’s backstory. Now that is what I call leveling up in the gaming experience.
Cha-ching for Nvidia
It’s a challenge to put a number on what ACE could mean for Nvidia’s revenue. Between fiscal 2018 and fiscal 2022, the company’s gaming revenue more than doubled to $12.4 billion. But ACE is not just a gaming technology, it’s built inside Nvidia’s Omniverse development platform, which is used for creating 3D graphics and applications.
So, ACE could also impact Nvidia’s professional visualization segment, which includes Omniverse. Last quarter, that business reported a modest $226 million in revenue. However, if you lump together all the revenue Nvidia generates from graphics, including Omniverse and gaming chips, it totaled a whopping $11.9 billion in fiscal 2023 – or 44% of the entire business.
A challenge for competitors: Keep up or be left behind
Nvidia’s ACE is a testament to the company’s seemingly unstoppable momentum. Boasting an 84% market share in the discrete GPU market and an estimated 80% share of the AI chip market, Nvidia is leaving its competitors in the dust. Sure, AMD might try to nibble away at that lead with its investments in AI computing, but for now, Nvidia remains king of the hill.
What’s the secret sauce? Nvidia has a massive installed base of 4 million developers using its CUDA programming model and software libraries to build GPU applications. In other words, the company knows what graphics artists and software developers need from computing hardware – and delivers without fail.
Now, Nvidia’s stock isn’t cheap, trading at a forward price-to-earnings (P/E) ratio of 54. But let’s not just look at the gaming opportunity by itself. A near-term recovery in graphics-related revenue could be a catalyst for accelerating growth on top of the strong demand for AI chips. With graphics revenue falling 25% last year and compute and networking (including data center chips) growing 36%, it’s possible that both segments could bounce back soon – and that might just support Nvidia’s high P/E.
So, buckle up, because Nvidia is showing no signs of hitting the brakes. With ACE, the company is on a high-speed course to build a solid future in gaming and beyond.
