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NVIDIA and Microsoft Collaborate on Minecraft's Ray Tracing

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NVIDIA NVDA recently announced that its real-time ray tracing technology is selected by Microsoft MSFT to provide enhanced graphics on personal computers (PC) for Minecraft video game players.

NVIDIA further noted that an update on Minecraft to support ray tracing will be available for free.

The company also noted that other games, which have adopted its technology include Activision Blizzard's Call of Duty: Modern Warfare, Ubisoft Toronto's Watch Dogs: Legion and Tencent NExT Studios' Synced: Off Planet.

Following this news, shares of the company rose 7.03% to close at $170.78 on Aug 19. In the year-to-date period, the stock has gained 27.9% year to date, outperforming the industry’s rally of 14.2%.

NVIDIA Banks on Gaming Business

NVIDIA’s fate is highly tied to its gaming segment, which remains the largest contributor to its revenues. A strong uptick in PC gamers, eSports players and higher spending on the gaming GPUs have been key catalysts.

However, reduction in GPU channel inventory following tepid demand amid crypto miners has been an overhang on its gaming business for the last few quarters.

Nonetheless, in the recently reported quarter, although the company witnessed a year-over-year decline in gaming revenues, the same increased substantially on a sequential basis. The 24% sequential growth is attributed to better SoC (system on chip) modules for gaming platforms, gaming notebook GPUs and GeForce RTX SUPER gaming GPUs.

NVIDIA is now optimistic about the recovery in gaming business and expects it to have normalized.

NVIDIA has been instrumental in introducing real-time ray tracing technology to the gaming world and its potent technology has provided the company with a substantial economic moat in this industry. A spate of blockbuster AAA titles, which pledged support for NVIDIA RTX ray tracing technology, is a positive. Further, the company believes, the recently releasedGeForce RTX SUPER GPUs will strengthen its leadership in the high end of the market.

Per IDC data , the worldwide market for gaming desktops, monitors and notebooks is projected to witness a CAGR of 7.4% between 2019 and 2023 and touch the figure of 41.5 million devices to be shipped in 2019. This vouches for NVIDIA’s high potential that comes with a bullish outlook for PC gaming.

Ray-Tracing — The Game Changer

NVIDIA’s Turing GPU and its real-time ray tracing technology are witnessing a massive adoption. The company is also benefiting from the uptake of real-time ray tracing in the professional visualization markets.

Management stated on its last earnings call that more than 40 design and creative applications with RTX technology were already announced by leading software players including Adobe ADBE, Autodesk, Dassault Systèmes, Pixar, Siemens, Unity, Unreal and Weta Digital within a year of launching the RTX GPUs.

NVIDIA RTX technology is facilitating researchers and developers to explore photorealistic rendering, augmented reality and virtual reality. It recently unveiled the RTX studio laptops for content creators.

Reportedly, RTX has been welcomed by more than 80% of film studios and 3D application providers. With real-time ray tracing, studios are capable of saving on the post-production time that accounts for majority of expenses.

AMD — A Key Challenger

Advanced Micro Devices AMD is also a key player in the field of real-time ray tracing technology.

AMD’s ray tracing SDK Radeon Rays, formerly known as AMD FireRays, is compatible with Windows, Apple’s macOS and Linux operating systems. The company’s updated version of ProRender software is also capable of ray tracing.

Last month, AMD rolled out Radeon RX 5700 series graphics cards developed on latest RDMA gaming (or Navi) architecture. However, it is still in early stages before gearing up to emulate NVIDIA’s remarkable success story.

Reportedly, NVIDIA’s GeForce RTX graphics processing units are currently the sole GPUs efficient in gaming with real-time ray tracing.

We believe, the real-time ray tracing technology will help NVIDIA expand its customer base, thereby boosting its revenue stream.

NVIDIA currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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