Nvidia Surges in 2016 Using Graphics Chips to Challenge Intel

Nvidia Surges in 2016 Using Graphics Chips to Challenge Intel

Nvidia Surges in 2016 Using Graphics Chips to Challenge Intel
(Bloomberg) — When Paulina Sliwinska, a fund manager at Edinburgh-based Baillie Gifford & Co., made the trip to Silicon Valley looking for the next big thing in technology, she found it — not in a hot startup run by a 23-year-old whiz kid just out of Stanford, but in a 23-year-old semiconductor maker that’s had the same chief executive officer since its founding.

Jen-Hsun Huang, CEO of graphics-chip maker Nvidia Corp., has won over Sliwinska and many other investors this year with claims that his products, once confined to the niche of computer-gaming machines, are breaking out to become key components of nascent technologies from voice recognition to self-driving cars.

“He’s so engaging,” said Sliwinska. “Even from this point the opportunities in front of it over the next 10 years are astonishing.” After she met Huang in August, the fund added to its position and is now the 10th-largest holder. The company is the best performer on the Nasdaq 100 Stock Index this year, outpacing the No. 2 stock by a multiple of almost three.

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Under Huang, Nvidia has built itself into the leading supplier of graphics processors, the chips that deliver the ever-more-realistic images that make computer games so immersive and addictive. For most of its history, that’s been a relatively small market, with the much bigger businesses of computer processors and smartphone chips dominated by Intel Corp. and Qualcomm Inc.

This year, though, Huang’s longtime belief that the fundamental advantages of his graphics chips would give them a broader role in fast-growing fields such as artificial intelligence and self-driving cars has begun to pay off — and is buoying Nvidia’s earnings. In the third quarter, demand for chips used in data centers and cars helped fuel a 54 percent surge in sales, and profit doubled to a record.

That performance was the result of years of investment in the hardware and software aimed at enabling computers and cars to think for themselves, according to Huang. The stock surged 30 percent on Nov. 11, the day after the earnings report. Yet there was no victory lap from the CEO — his company is going to battle in markets also targeted by famously fierce rivals Intel, whose annual R&D spending is twice Nvidia’s revenue, and Qualcomm, which has the largest cash balance in the chip industry.

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“The only thing we can guarantee is the velocity with which we innovate,” Huang said in an interview at the time. Nvidia declined to make Huang available for comment for this story.

Huang, 53, runs Nvidia like it’s still a startup, making snap decisions and demanding fast execution, according to those who have worked for him. For a semiconductor maker, that’s no small feat: Designing a chip, getting it ready for market and then having it manufactured can take years and costs hundreds of millions of dollars.

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