With Nvidia's (NVDA) investor day now over, the sell-side analyst notes are starting to flow. As a result, we want to follow up on our newly initiated position and give members an idea of the "word on the street."

To start, let us re-address the key factors of our investment thesis. Overall, there are four key factors investors must keep in mind:

  • End markets -- gaming, data center, autonomous vehicles, pro visualization, etc.
  • Hardware dominance -- While AMD is making significant progress on its front, Nvidia remains the elite GPU manufacturer.
  • CUDA -- The company's parallel computing platform
  • The network -- With the announced acquisition of Mellanox Technologies (MLNX) , Nvidia has made it clear that it plans to not only be a provider of the world's best GPUs but a key player in the way companies go about building out their data centers overall to take advantage of accelerated computing.

With these four factors in mind, let's look at what the sell-side is saying following the investor day.

End Markets

In line with our first pillar, multiple analysts called out the company's total addressable end markets (TAM) outside of gaming, including management reiteration of a $50 billion total addressable market (TAM) for high-performance computing by 2023 and $30 billion TAM in automotive driving.

On the gaming front, analysts at J.P. Morgan called out their expectations for the company's gaming operations to continue to grow on the back eSports, emerging markets, cinematics (ray tracing), gaming notebooks (which the analysts note is one of the fastest segments in the PC market) and cloud gaming (a factor that will help emerging market adoption), adding that, in their view, the "user base [is] paying up for performance."

There is another factor we need to call out on gaming, especially following Alphabet's (GOOGL) announcement regarding its new streaming platform, "Stadia." This end market is clearly set to shift from in-home hardware to the cloud in coming years, provided the data-transfer infrastructure can keep up. However, while this could pose a longer-term headwind for Nvidia's PC-based chip business (the main selling point of cloud gaming being that it eliminates the need for in-home hardware), management is fully prepared for the coming age of cloud gaming, saying that it will be ramping up its own cloud-based streaming platform, GeForce NOW, which currently spans 15 data centers, has 300,000 monthly active users and a 1 million person waiting list. Longer-term, management sees this space as a 1 billion gamer opportunity.

Lastly, on the end-market front, we would note that the one end market that has proven detrimental to NVDA shares in recent months due to excess channel inventory, cryptocurrency (recall, high-powered GPUs are a key component in crypto mining), is still expected to normalize in the April quarter, a key factor that will serve to remove one of the biggest overhangs for the stock and remove a significant element of sales and earnings volatility. Backing management's commentary on the crypto overhang, analysts at KeyBanc noted that the timing, "loosely matches our own checks, which have indicated that much of the inventory will simply be written off by channel partners as demand for older mid-range cards remains nearly nonexistent due to significant used inventory from retired crypto rigs."


On the CUDA front, and speaking to the importance of widely adopted, developed software platforms, analysts at Credit Suisse stated, "silicon is the delivery mechanism, software and ecosystem is the value add." We believe this emphasizes the importance of CUDA and the network factor as the Mellanox acquisition is key to helping the company build out its network ecosystem.

Furthermore, the ability to offer high-quality software should also allow the company to address new end markets over time, with the analysts adding "management highlighted continued investments in software, domain expertise and ecosystem as a key differentiator and highlighted new TAMs in Healthcare (Clara) and Robotics (Isaac)." Note that these end markets are not currently factored into Nvidia's outlook, providing the potential for additional upside as management comes to better understand the opportunity in these industries.

The Network

Looking to the network pillar of our investment thesis, several analysts called out CEO Jensen Huang's view that Nvidia is a "computing platform company," not simply a GPU hardware company. We couldn't agree more and reiterate our view that while the company's basis (and what they are largely known for) may be the GPU hardware, the multi-year software head start via CUDA and the intensified focus on the networking via the acquisition of Mellanox make Nvidia so much more than a supplier of semiconductors.

Recall, Nvidia has already been able to overcome the end of Moore's law via GPU-acceleration and technology such as NVlink, which allows for multiple GPUs to work as one. Now, the Mellanox acquisition will allow the company to develop new acceleration techniques as Mellanox's InfiniBand technology ties together the various segmented parts of the data center to unlock more power.

We believe this aspect of the company's growth story cannot be overstated and that it will continue to take on a more central role. Analysts at Bernstein in a note this morning highlighted that "the company seems to have used their time to try to stress their ownership of the broad ecosystem around their products and markets, focusing significantly on their software environment," adding that "new hardware announcements were sparser."

We view this as a positive spin on the narrative. Pure-play semiconductor and tech hardware companies in general (i.e., those without a software element) can be notoriously volatile due to the boom/bust nature of customer upgrade related capital expenditures (consider the positive change at Cisco Systems (CSCO) following the company's push into software/security versus the action we see in names such as Micron Technology (MU) ).

Finally, tying together nearly all of the factors noted above, analysts at J.P. Morgan noted, "although the team did not put forth a long-term target model (similar to prior years), we are encouraged by the market growth opportunities and, more importantly, NVIDIA's ability to leverage its silicon architecture across multiple end markets and applications, supported by the company's investments in software and ecosystem development." They added, "while we do consider process/silicon one important factor of competitiveness, we fully agree that NVIDIA's ecosystem and software-driven focus has led and will continue to lead to momentum across its focus end markets/domains." We believe this statement, alone, addresses our bull thesis as we reiterate that Nvidia is fast becoming much more than simply a GPU-oriented hardware company.

Hardware Dominance

While the GPU will continue to be at the heart of Nvidia's DNA, its significant head start on software, thanks to CUDA and management's efforts to partner with leading AI researchers over the past 10+ years, will help maintain the company's industry leadership. Indeed, we believe this to be the case, even should Advanced Micro Devices' AMD hardware further close the gap. And to be clear, AMD, which partnered with Alphabet to create a custom GPU for the latter's new game streaming platform "Stadia," is indeed making significant progress on the hardware front -- though it still lacks the diversity of Nvidia and its end markets.

Finally, we continue to view the Mellanox acquisition as material to Nvidia's longer-term growth story, as more and more company workloads move into the cloud over time. This will support data-center growth and the need for design to constantly be reassessed as complex tasks, such as deep learning and inferencing show no sign of letting up. No doubt, this area will become even more complex as artificial intelligence advances, the internet of things expands and the adoption of robotics, AI assisted healthcare, autonomous driving and more become mainstream.

Action Alerts PLUS, which Cramer manages as a charitable trust, is long NVDA, GOOGL and CSCO.