Meet NVIDIA's next multibillion-dollar opportunity

The graphics specialist has moved into a new niche to boost data center growth.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

NVIDIA Corporation's (NASDAQ: NVDA) data center business was in the limelight recently as the company warned of a sequential slowdown in this segment after six consecutive quarters of growth. But investors need not be worried about its data center prospects, as the business has multiple catalysts, including a new opportunity that is worth paying close attention to.

The graphics specialist pointed out in its last earnings release that it introduced a new chip during the quarter: the BlueField-2 DPU (data processing unit). Let's see why this chip could unlock a big revenue opportunity for NVIDIA and strengthen its hold over the data center market.

NVIDIA makes another move in data center accelerators

NVIDIA's graphics cards have been accelerating data center workloads for quite some time now, outperforming traditional CPUs (central processing units) thanks to their massive computing power that helps quickly execute tasks at a fraction of the cost. The rapidly expanding data center accelerator market is estimated to be over $21 billion by 2023.

NVIDIA's launch of a DPU in October gives it an opportunity to capture more of the market. DPUs are considered to be a new type of data center accelerators after CPUs, GPUs, and field-programmable gate arrays (FPGAs).

According to NVIDIA, DPUs are going to play a critical role in data centers by complementing the tasks performed by CPUs and GPUs. The chipmaker points out that while CPUs can perform general tasks and GPUs can accelerate heavy workloads in a data center, DPUs are responsible for the efficient transfer of data to other components, and also take care of workloads related to artificial intelligence, machine learning, and other applications.

In simpler words, NVIDIA aims to make data centers faster and more efficient with the BlueField-2 DPU. As it said when the product was launched. "A single BlueField-2 DPU can deliver the same data center services that could consume up to 125 CPU cores. This frees up valuable CPU cores to run a wide range of other enterprise applications."

The DPU is a hot commodity already

It has been just two months since NVIDIA launched BlueField-2, and the chipmaker has already scored a big customer for the chip in VMware. The cloud computing player is deploying DPU-enabled smart network interface cards (SmartNICs) across millions of virtualized servers. What's more, NVIDIA says that it is sampling the DPU with major hyperscale OEMs (original equipment manufacturers) as well as enterprise server manufacturers.

NVIDIA said in October that Red Hat, Canonical, and Check Point Software Technologies are either supporting BlueField-2 DPUs or integrating them into their offerings. Dell Technologies, Asus, Lenovo, and Fujitsu are some of the names that are expected to offer NVIDIA's DPU with their enterprise servers.

As such, it won't be surprising to see more data center infrastructure equipped with NVIDIA's DPU come out in the future and help the company sustain the impressive momentum of this business. The data center business recorded 162% year-over-year growth last quarter and generated 40% of the total revenue.

The DPU market could help the data center business switch into a higher gear and help NVIDIA remain a hot growth stock.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends NVIDIA. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends VMware. The Motley Fool Australia has recommended NVIDIA. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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