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The tech company poised to dominate in 2020

The-Inside-Investor-18-01-21

By now 5G has become more than just a tech buzz word. The fifth-generation mobile network is about to become reality for most Australians as major telco providers are well into their 5G infrastructure build.

The new network will transform Australia’s entire telecommunications ecosystem into “smart cities.” This transformation allows people to connect not only with just one another, but with machines, objects, and devices. Apart from quicker data transfer speeds, 5G will have significantly lower latency rates and higher reliability but more importantly, it will create opportunities in almost every business segment benefiting both service providers and end-users.

While there is a long list of obvious companies that benefit directly from 5G, such as Telstra or 5G Networks (ASX: 5GN), there are a number of companies that offer an indirect exposure to this powerful technological trend. Two come to mind, Taiwan Semiconductors or TSMC, and NVIDIA. 

NVIDIA isn’t a pure play on 5G but rather an indirect beneficiary of the technology. NVIDIA Corporation (NASDAQ: NVDA) is a US stock listed on the NASDAQ. The stock is trading at US$541.27 at the time of writing and is up 118% since this time last year.

The company is a household name for many in the tech or funds management sector, but those most familiar with the name are mainly PC video gamers. For those that don’t know, NVIDIA is a graphics processing chip manufacturer that currently generates most of its revenue from the sales of graphics processing units (GPUs), which are used for competitive gaming, professional visualisation, and cryptocurrency mining.

And therein lies the benefit from 5G.

Whilst everyone is fixated on 5G and the infrastructure build to enable the technology, super-fast wireless data transfer is also heavily reliant on the equipment and hardware at the user end. That means the handsets, data centres, networking equipment, cell towers and super-fast graphics chips all working together to deliver this service.

According to the company, “NVIDIA GPUs make applications like cloud-based virtual reality (VR), smart cities, cloud gaming, 360-degree immersive video, connected drones, and autonomous vehicles possible. As demands on the telco industry grow, these applications will be able to take advantage of GPU computing power, without having to change software functionalities.” NVIDIA’s primary GPU product is labelled “GeForce” and is heavily used in the gaming and eSports industry. The company also provides “parallel processing capabilities to researchers and scientists that allow them to efficiently run high-performance applications”.

NVDA is a great way to play 5G. How will it benefit?

With 5G comes the internet of things (IoT) and smart cities. This transformation will demand greater network performance. Major telecommunications companies rely on NVDA technologies to build software-defined infrastructure that can meet the demand for increased memory and voluminous data processing. NVDA has joint-ventured with Ericsson to expand 5G network capabilities and efficiencies. NVDA’s GPUs boost network intelligence and help lower capital and operating costs.

Adding to NVIDIA’s appeal is the fact that the semi-conductor sector has pretty much become a two-horse race between TSMC and itself, offering significant profit margins and huge barriers to entry.

With the shift to 5G just getting underway, NVIDIA is a conservative way to play it. The company is well diversified with long term upside potential. NVIDIA was a big winner for 2020. With demand for the company’s chips remaining strong across gaming, AI and cloud computing, NVIDIA could be a big winner again in 2021.

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