Artificial intelligence, machine learning, augmented and virtual reality and autonomous cars are all emerging hyper-growth areas with one thing in common -- their needs for more computing power, the likes of which we haven't seen before. The only way to get the necessary power is via a graphical processing unit, or GPU.
Thanks to this deluge of events all converging at the same time, Nvidia (NVDA) has had quite the 2016 and it only looks poised to continue.
Nvidia, which makes GPUs, has benefited in recent weeks from some high-profile design wins, including having its Titan GPU in Tesla's (TSLA) autonomous cars. The announcement, which came from Tesla CEO Elon Musk, is a big opportunity for the Santa Clara, Calif.-based chipmaker, according to Jefferies analyst Mark Lipacis.
"We estimate this to be a $30-$50 [million] annual opportunity for NVDA near term," Lipacis wrote in a note to clients. "More importantly, we view the announcement as a watershed that demonstrates the power of neural networking and GPUs."
As if this wasn't enough, the company also announced it would be supplying the GPU for the highly-anticipated Nintendo (NTDOY) Switch gaming console. The Switch, due out in March 2017, is expected to revitalize Nintendo's console business after the venerable disappointment that was the Wii U. Early thoughts and comments of the Switch have been extremely positive.
Many industry watchers have noted that Nintendo may have chosen or based the Switch off Nvidia's own gaming console, the SHIELD. While it has not been as big a seller as the Xbox One or Playstation 4, it has been commended for its capabilities and graphics.
Analysts surveyed by Yahoo! Finance expect the company to earn 57 cents a share on $1.67 billion in revenues when it reports fiscal 2017 third-quarter results on November 10.
These three ETFs may benefit if investors like what Nvidia has to say about the past 90 days and its role in artificial intelligence, machine learning and the "age of the GPU."
iShares PHLX Semiconductor ETF
Nvidia makes up 8.21% of the iShares PHLX Semiconductor ETF (SOXX) , which has $420.9 million in assets under management and has a 0.47% expense ratio.
Jefferies's Lipacis noted he believes that all Tesla cars will ship with the Titan GPU, which he thinks will be used for "collecting data for neural network training purposes." As a result of the opportunity (and others down the line), Lipacis said he expects Nvidia's "multiple to expand with more announcements of deep learning advancements."
EcoLogical Strategy ETF
The EcoLogical Strategy ETF (HECO) has Nvidia make up 5.63% of its $6.3 million portfolio and charges investors a 0.95% expense ratio.
Lipacis, who has an $80 price target on Nvidia, believes the Nintendo opportunity is likely to be bigger than the opportunity from powering Tesla's autonomous vehicles, at least in the near term.
"We estimate this to be a $200-$320 [million] annual opportunity for NVDA near term," Lipacis wrote in another note to clients. "While the incremental dollars would likely be margin dilutive, we view upside potential to our sales and EPS estimates of $0.11 to $0.16 in 2017."
Industrial Innovation ETF
The Industrial Innovation ETF (ARKQ) has Nvidia make up 6.54% of its $15.6 million portfolio and charges investors a 0.75% expense ratio.