Watch the Throne: Mellanox acquisition shows NVIDIA’s ambitions in cloud and enterprise services

J.C. Kuang, Analyst J.C. Kuang, Analyst Insights

Greenlight Insights has previously highlighted NVIDIA’s looming interest in becoming the global leader for datacenter technology, as demand for increasingly robust cloud services and an increasing reliance on network-added capabilities for different kinds of computing scenarios. CEO Jensen Huang said of the deal and its impact on NVIDIA’s future,

“I’ve believed for a very long time that Nvidia would go from a chip-level company to a server-level company to essentially a data center-scale company.”

However, if the company’s continued pivot resulted in a scaling back of its “chip-level” operations ( in favor of ramping up fabrication of “server-level” hardware and powerhouse AI flagships such as the DGX line), the consumer graphics industry, and by extension the VR industry, might experience some significant shifts.

Our Analysis

The Mellanox deal highlights an important trend - the discrete graphics card industry continues to experience rapid change as a direct result of the rapid growth and forced acceleration of artificial intelligence and related technologies. While maintaining a relatively steady duopoly, graphics companies AMD and NVIDIA have each enabled new high-performance computing applications for which discrete GPUs are much better suited than traditional computer processors. Now however, following a tepid response to its latest graphics architecture from gamers, NVIDIA’s shifting focus towards datacenter, cloud, and enterprise business opportunities has only become more pronounced.

Rival GPU company AMD stands to reap the most immediate benefit from a potential vacuum in the consumer graphics market; AMD has remained competitive in semiconductor business for both traditional processors (against Intel) and GPUs (including high-end datacenter-grade hardware), and is well-known for offering comparable performance to its rivals at a generally lower cost. A reduction in competition might allow the company to move its price points up and offer more premium hardware for consumers and gamers.

On the other hand, there is little indication that such a shift would occur in the immediate future. By the time any observable downswing came to NVIDIA’s consumer level cards, Intel may have unveiled its long-awaited discrete graphics offering. The CPU giant has been working on an entirely new architecture, and executives has expressed confidence in the company’s ability to release in 2020. Intel’s VP of Visual Computing positioned the future hardware as a “massive enhancement to Intel’s graphics IP, optimized for future graphics, compute, and machine learning workloads,” which closely approximates NVIDIA’s own language behind hardware such as RTX.

VR is highly dependent on the performance of of both GPUs and the hardware market as a whole. While Greenlight Insights has previously asserted that more efficient standalone VR devices will eventually overtake tethered, GPU-powered HMDs, powerful graphics cards will still be crucial to delivering premium, high end experiences in location-based entertainment and certain enterprise applications, such as marketing and product design. However, as more and more of these applications are ported to standalone devices, including training, gaming, and even market research, stakeholders and consumers alike will need to begin exploring standalone hardware for even more established and emerging use cases.