Nvidia's (NVDA) third-quarter results showed investors just how strong the company's future is in areas like machine learning and autonomous driving. Though shares have soared over the past year as a result of the strong outlook, investors are betting there are more gains to come.
From machine learning to autonomous driving to virtual reality, graphical processor units, or GPUs, are the brains behind much of the technology. Nvidia's chipsets are the dominant presence, and it's the early stages of what's being dubbed by some as "the artificial intelligence revolution."
This convergence of technology is being driven by artificial intelligence at the heart of almost every decision technology companies (and non-tech companies) make, as they try to understand their customers better and focus on productivity increases.
"While we still argue that GPUs are not the best fit for inference applications, it is still early and [Nvidia] continues to outperform in multiple segments, particularly Datacenter and Gaming," Barclays Capital analysts highlighted in a note previewing earnings. "We applaud the execution on growth vectors (autos, VR) and step to the sidelines to reassess opportunities later in the year."
Nvidia has been at the forefront of this AI trend and the company's CES keynote highlighted just how important Nvidia is to the future of technology's next wave of computing.
At CES in January, Nvidia CEO Jen-Hsun Huang touched on a number of areas, including announcing GPUs-as-a-service and high-end gaming for any computer, including Apple (AAPL) Macs. He also unveiled a plethora of new partnerships, including ones with Audi Bosch on self driving cars and a new Nvidia Shield.
The Santa Clara, Calif.-based company is expected to report fourth-quarter earnings of 83 cents a share on $2.01 billion in sales, according to analyst estimates compiled by Yahoo! Finance.
Over the past 12 months, shares of Nvidia have soared nearly 370%, compared to the near 22% gain in the S&P 500.
Here are three ETFs that may benefit if investors like Nvidia's fourth-quarter results.
iShares PHLX Semiconductor ETF
The $10.8 billion iShares PHLX Semiconductor ETF (SOXX) has Nvidia make up 10.41% of its portfolio, charging investors an expense ratio of 0.47%.
Morgan Stanley analyst Joseph Moore had been expecting the strong cycle in gaming PCs to plateau, but recent data suggests it's only getting stronger, which bodes well for Nvidia.
"We had modeled the gaming cycle to plateau this quarter, but with strong data points on specialty gaming hardware from Intel, AMD, and PC hardware vendors at CES, we assume that gaming is again slightly higher than seasonal," Moore wrote in a research note, previewing earnings. Moore has an equal weight rating and a $115 price target on Nvidia.
The $234.8 million Industrial Innovation ETF (ARKQ) has Nvidia make up 7.21% of its portfolio, charging investors an expense ratio of 0.75%.
VanEck Vectors Semiconductor ETF
The $431.5 million VanEck Vectors Semiconductor ETF (SMH) has Nvidia make up 6.27% of its portfolio, charging investors an expense ratio of 0.35%.
RBC Capital Markets Amit Daryanani noted that while the size of the AI market is up for debate, it's likely to be enormous, no matter what it ends up at. "We start with the AI opportunity growing at a ~12x rate over 3 years (per Intel's AI Day) and use 1) recently published white papers to calculate GPU workload growth; and 2) GPU performance improvement since 2008," Daryanani wrote in a research note ahead of earnings. "Our analysis suggests that total Data Center revenue growth could come in closer to 100% (Street at 40%) this year (91% unit growth, 5% ASP uplift)."
RBC has an outperform rating on Nvidia and a $124 price target.