Nvidia Bets Big On ‘Deep Learning’

It’s the best performing stock in the S&P 500 this year and one of the best stocks my Tech Trend Trader members currently own. Yet, the scale of what Nvidia (NVDA) is doing may still be underappreciated.

The essence of Nvidia, and its hold on the future of computing, is based on artificially intelligent software. Long ago, the company committed to data science that allows computers to think, see and learn like humans. Deep learning based on graphic processing units has been embraced by computer scientists. That exponential adoption by cutting-edge customers is driving Nvidia’s bottom line.

Humans make snap decisions based on experience.  If we’re traveling on an interstate freeway and a bug is hurtling toward the windshield, well, it’s a bad day to be a bug.  Until recently, computers had to stop, process the threat posed by the bug, then decide what action to take.  It was complicated.

That’s because conventional computer architecture is sequential. Deep learning is based on a new model where billions of software neurons and trillions of connections run in parallel, in networks.

In 2011, Alphabet’s secretive Google Brain learned to identify cats and people by watching videos on YouTube.  That seemingly simple feat required 2000 CPUs and Google’s vast data center network. Later, Stanford University managed to replicate this with just 12 Nvidia accelerated GPUs.  By 2015, researchers at Google and Microsoft (MSFT) used deep neural networks to beat humans in image recognition. 

“By collaborating with AI developers, we continued to improve our GPU designs, system architecture, compilers, and algorithms, and sped up training deep neural networks by 50x in just three years — a much faster pace than Moore’s Law,” wrote Nvidia CEO Jen-Hsun Huang on a corporate blog.

The impact for deep learning has been enormous.  Researchers in healthcare, life sciences, energy, financial services, manufacturing, entertainment and automotive are innovating at a frenetic pace.

Nvidia’s DGX-1™ is the world’s first artificial intelligence supercomputer in a box. It’s fully integrated with hardware and deep learning software.

Tesla (TSLA) recently showed a self-driving vehicle equipped with Nvidia Drive PX hardware.  The car successfully navigated busy residential streets, winding country roads and the interstate before parallel parking in front of the corporate storefront.  Daimler, Audi and others are using Nvidia neural networks to advance their self-driving platforms, too.

In addition, Nvidia builds GPU hardware for robots, computer makers, defense contractors, cloud and super computer applications under the trademarks Jetson, GeForce and Tesla.  Adoption has seen exponential growth.

From 2012-2015 collaborators increased by 35 times.  Some 3,400 companies are now working with Nvidia.  These companies want to build more intelligent products and solve the most complex problems with software.   Public cloud computing companies Amazon, Microsoft and Alphabet have been especially enthusiastic buyers of Nvidia gear.

While Nvidia shares have performed well, they are due for a period of consolidation. That is, they should trade slightly down and sideways for a while. Investors should not lose sight of the opportunity ahead of Nvidia during that stretch.  Deep learning is a big idea and adoption is just beginning.

ARE YOU READY TO RENT OUT YOUR CAR?

There are 250 million cars in the U.S. Most of them are sitting idle 23 hours per day. Increasing utilization would reduce pollution and congestion. It would also change the world.

Getaround is now one step closer to helping with that dilemma thanks to a $10 million investment from a Toyota unit called Mirai Creation. The money will help the startup expand its peer-to-peer marketplace for on-demand car-sharing in Chicago, Washington D.C., San Francisco and other cities. If that sounds familiar, think AirBnB, except for cars. Members rent out their own cars hourly, daily or weekly based on rates they set. It’s a great idea. There is just one catch. It’s disruptive for companies that make cars.

Toyota executives see the writing on the wall, and they’re staking a claim. In addition to the money, the Japanese firm will provide a Mobility Service Platform and a smart-key box. It allows customers to unlock and start the shared car with no more than a smartphone.

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Internal Sponsorship

Getaround founders Sam Zaid, Jessica Scorpio and Elliot Kroo solved a big model problem way back in 2009. They approached a firm owned by Warren Buffett’s Berkshire Hathaway (BRK.A) and came up with a bulletproof fleet insurance policy. Customers are pre-screened for membership and insured for collision, comprehensive and liability up to $1 million. The car owner’s policy is not vulnerable.

The business opportunity for Getaround — whose app includes rental ads like the one above — is in line with many other disruptive businesses we have talked about this year: It is using software to turn car ownership into a service. It takes a hefty 40% fee for getting the parties together, arranging the insurance and collecting the money. It does all of this in a sleek smartphone app.

This Mobility-as-a-Service business model is not lost on car makers. In addition to Getaround, Toyota is a strategic investor in Uber. Avis Budget Group (CAR) owns Zipcar, a ride-sharing business with more than 1 million members. And General Motors (GM) and Audi announced similar services for the San Francisco area this year.

What sets Getaround apart is the peer-to-peer nature of the business model. Although it did recently absorb 200 vehicles from San Francisco-based City CarShare, there is no other fleet. In fact, the corporate mission is to reduce overall car fleets through increased utilization. The company claims more than 200,000 members and 25,000 car owners willing to share their vehicles for a fee.

Getaround currently operates in only a few cities but its ambitions are national and beyond. In 2009, Zaid and Scorpio were challenged by Google founder Larry Page to build a business that could benefit 1 billion people in 10 years. They decided to change the world by eliminating car ownership.

“We see a true long-term shift in how consumers will access transportation in the future, moving away from ownership toward access,” Zaid told Entrepreneur magazine in 2014. “We have an opportunity to help shape that future.”

They’re off to a slow but steady start, and should accelerate in the next couple of years.

(And no, you cannot rent my Zero. At least not yet.)

Best wishes,

Jon Markman