Last week, I wrote that Nvidia could surpass Apple in five years as the artificial intelligence economy will be nearly four times larger than the mobile economy that drove Apple. To get an understanding of how big the AI economy will be, we pointed towards estimates of AI adding $15 trillion in GDP once it reaches maturation in 2030 compared to mobile adding $4.4 trillion to GDP in the current year.
The analysis discussed some of the underlying product strength Nvidia has with its GPUs and its new software suite that allows accelerated AI computing on virtual machines rather than bare metal servers. We also revisited my original thesis around the GPU-powered cloud and developer adoption of CUDA, both of which are still intact three years later.
There are numerous forward-looking catalysts for Nvidia as enterprises will seek to lower costs and increase production with AI. In fact, while I wrote the AI economy would be four times larger, Jensen Huang predicts that “Omniverse or the Metaverse is going to be a new economy this is larger than our current economy.”
Well then, so much for correlating the AI economy to the mobile economy as Huang predicts an entirely separate revenue segment will surpass our current GDP of $84.7 trillion.
Let’s Start with Metaverse Basics:
The dry definition of the Metaverse is a shared virtual 3D world that is interactive, immersive, and collaborative. The word “Metaphrase” was first coined by American writer Neal Stephenson in his science fiction Snow Crash in the year 1992. However, the word meta dates back to the Greek era, which means “after” or “beyond.”
There are many other articles online that describe the Metaverse in detail, like this one in Forbes by Cathy Hackl. She points out that the Metaverse is described as “digital realities where people work, play and socialize.” In some ways, social media and gaming are the stepping stones to these virtual realities. How many of us have friends and acquaintances on social media that we have never met, such as on Twitter or on Fortnite, or people we haven’t seen in decade yet feel close to, such as on Facebook or LinkedIn?
If you experience moments where your virtual life online feels as real as your physical life, then you’ve dipped your toe into the idea of a Metaverse.
The idea of a virtual economy already exists in many games where you can trade virtual goods and where players are paid for creating content. The idea of crypto mining is also an example of where real-world work is exchanged for virtual currency (and value). Now that Bitcoin at $1 trillion and rivaling the market cap of FAAMG stocks, we have already seen some evidence of a virtual world translating to the real world.
This new economy will be a combined effort of many companies and users. As mentioned, the term Metaverse is not new and has been used by tech companies over the past few years. Microsoft Xbox head, Phil Spencer made this point four years ago that he is a believer in the Metaverse. In addition to the various gaming and AR/VR tools that the company offers, it also purchased Minecraft maker Mojang Studios. Minecraft could be one of the pioneers of Metaverse in the future due to the digital world games and its large user base.
Roblox is another company that was early to this concept. On average more than 36 million young people come to Roblox to play, learn, and interact in a 3D virtual space. Neil Rimer, co-founder of Index Ventures which is an early investor in Roblox, rightly said in an interview with CNBC that “No single company can build a metaverse. It has to be a community.”
It’s important to point out that there are false starts and early spinouts in technology. I had written at length about why autonomous vehicles were an impossibility by 2020 when the financial news had generated a hornet’s nest worth of buzz. Three years later, and we do not have robotaxis or anything of the sort driving commercially on roads. Similarly, The Metaverse will take time to build.
Where Will the Metaverse Be Built?
Nvidia’s Omniverse is the simulation and collaboration platform that will be partly used to build the Metaverse. More than 50,000 individual creators have downloaded Omniverse since it opened Beta in December 2020 compared to 2 million that have registered with the CUDA platform. The number of creators is now opened up due to integrations with Blender and Adobe, where it can potentially reach millions of additional users.
In the words of CEO Jensen Huang, “We are thrilled to have launched NVIDIA Omniverse, a simulation platform nearly five years in the making that runs physically realistic virtual worlds and connects to other digital platforms. We imagine engineers, designers and even autonomous machines connecting to Omniverse to create digital twins and industrial metaverses.”
It makes sense that Nvidia is early to this market as the company has worked ten years on the ray tracing technology used in the RTX Turing GPUs. The RTX platform was invented by Nvidia to “physically simulate light behavior in the world” and combines RT cores for ray tracing with Tensor Cores for AI. This drives Nvidia’s professional visualization revenue segment, which was up 156% year-over-year and up 40% sequentially.
The company also invented the ability to simulate physics and create architectures in the cloud to build “connectors.” This led to the development of USD, or Universal Scene Description, which allows for a portal into virtual worlds. These virtual worlds are then used to train robots or to create concerts and theme parks.
This year’s Nvidia’s GPU Technology Conference event slides were made from the company’s own Omniverse platform to make the presentation more interactive. The main highlight of GTC 2021 was a perfect virtual replica of Jensen Huang’s kitchen and with a digital clone of the CEO himself. The details given in the video of The Making of the GTC Keynote shows the combined work of NVIDIA’s deep learning and graphics research teams with several engineering teams and the company’s in-house creative team.
To create the virtual keynote, the teams had to take several photos of the kitchen and Jensen to create the 3D model that could mimic his gestures. The keynote raised debates as to which parts were rendered and which parts were real. A TechRadar article had said that the entire presentation was not real. However, Nvidia reached out to the company to note that while “Jensen’s corporeal form may have been rendered during portions of the keynote, it was Jensen Huang himself who was speaking at the presentation.”
The company’s post on the making of GTC made sure it was clarified. To be sure, you can’t have a keynote without a flesh and blood person at the center. Through all but 14 seconds of the hour and 48 minute presentation — from 1:02:41 to 1:02:55 — Huang himself spoke in the keynote.
Omniverse Use Cases
NVIDIA Omniverse Enterprise has made it possible for 3D production teams to work seamlessly together on complex projects. Rather than requiring in-person meetings or exchanging and iterating on massive files, design teams can work simultaneously in a virtual world from anywhere.
NVIDIA is working with various industry leaders using the company’s Omniverse platform in real-time situations. Omniverse enterprise software is in the early access stage and might be available later this year from NVIDIA’s partners, including Dell, HP, and others. Over 500 companies are evaluating Omniverse Enterprise, including BMW, Volvo, Lockheed Martin, Ericsson, and Bentley Systems.
Nvidia pointed out on the earnings call that there is a “Factory of the Future” that was developed on the Omniverse platform and that companies like BMW are using RTX and USD to simulate factories: “We’ve got a shared GTC Factory of the Future that is designed completely in Omniverse, robots trading Omniverse with goods and materials that are its original CAD data put into the battery. The logistics plan, like an ERP system, except this an ERP system of physical grids and physical simulation simulated through this Omniverse world, and you could plan the entire factory in Omniverse.
This will help BMW to increase the speed in decision-making and improve efficiency. The new approach will help to view their entire factory in simulation mode with photorealistic detail. Another advantage is that data is available immediately and any changes can be made in the planning stage itself, which saves time and money.
Bentley Software is an infrastructure engineering software company that builds complex infrastructure projects. The Bentley iTwin platform allows engineering firms to create and analyze digital twins of infrastructure assets. The result is millimeter-accurate digital content that even allows users to explore and even walk through infrastructure in real time. The digital twins are explored across multiple devices including AR/VR headsets. Foster + Partners, the architectural design and engineering firm that built Apple’s headquarters, is also testing Omniverse to help them render virtual sets in real-time.
Beyond the Omniverse:
As stated in the introduction, Jensen Huang said in the earnings call, “I’m fairly sure at this point that Omniverse or the Metaverse is going to be a new economy that is larger than our current economy.” If that’s true, then many companies will be winners in the space. Facebook is certainly trying as CEO Mark Zuckerberg said, “I expect people will transition from seeing us primarily as a social media company to seeing us as a metaverse company”.
My personal opinion is that Facebook has too many privacy issues and (frankly) a poor reputation to find much uptake in new markets. We’ve seen the company fail many times at attempts to move into stable coins, dating, Facebook gifts, Parse, among others. Not to mention the Cambridge Analytica data scandal, with its only success outside of the social network being accomplished through acquisitions. Regardless, the company is likely to get the kind of headlines that investors tend to rely on.
Unity, Epic Games and Roblox have arguably the best audience as they’ll target gamers for the Metaverse. The trick will be recruiting non-gaming audiences to produce a bigger market than what is currently being monetized through gaming.
For a list of investable Metaverse companies, check out the Roundhill Ball Metaverse ETF META provides exposure to companies that are involved in Metaverse. NVIDIA is currently its largest holding followed by Microsoft, Roblox, Tencent, Unity and Autodesk.
If the Metaverse economy surpasses the real-world economy, as Huang predicts, then one day we may look back at Jensen Huang’s keynote in a fully rendered kitchen and memorialize this moment similar to Steve Jobs keynote in 2007.
However, the beauty of a company like Nvidia is that I don’t have to time the Metaverse in order to see real gains. If the Metaverse thesis takes longer than expected to materialize, I am still bullish on the company due to its AI and GPU-cloud capabilities that is driving many industries. In fact, I am so bullish on Nvidia for AI that I believe the company can outpace even Apple, which I covered here.