NVIDIA Corporation Looks Set For Another Great Run

  • Datacenter and auto segments are showing rapid growth, supporting a 20%+ growth rate.
  • Gaming keeps ticking upwards, but artificial intelligence is where the real money is.
  • NVIDIA is riding the peak of the cloud wave that is lifting datacenter demand.

NVIDIA's (NASDAQ:NVDA) second quarter earnings blew past analyst estimates as the company reported $0.40 earnings per share on the back of $1.43 billion in revenue, while analysts were expecting $0.37 earnings per share and $1.35 billion in revenue.

The Numbers Behind NVIDIA's Success

As you can clearly see from the chart below, revenue growth in the last eight quarters has been on a steady upward climb, reaching above the 20% level year-over-year for the first time in several years.


During the first quarter earnings call the company had guided only $1.35 billion in revenue for the second quarter, with a possibility of a 2% deviation. It’s clear now that the company had low balled the expectation and handsomely beat its own estimates, pushing the stock up by more than 5% after the earnings report.

The stock is now up 91.26% since the start of this year and has nearly tripled in a year's time. The company attributed its stellar results to strong demand for NVIDIA’s new Pascal-generation GPU’s and surging interest in deep learning (artificial intelligence).

NVIDIA is now guiding for plus or minus 2% of $1.68 billion in the third quarter, and the mid-range for that would require the company to post a growth of a record 28.74% compared to their third quarter results last year.

Considering the way the company low balled the second quarter guidance, not many would be surprised if NVIDIA beats its estimates yet again, but a near 30% quarterly revenue growth means that the company is already seeing visible momentum in different lines of its business.


Where is this Growth Coming From?

NVIDIA’s growth was fueled by the company’s performance in all its segments other than OEM. The most important factor to note here is how their Datacenter and Auto segments are growing. The datacenter business more than doubled its revenues from $72 million last year to $151 million in the second quarter this year, while Auto moved from $71 million to $119 million. Together, these two segments brought an additional $127 million to NVIDIA, thus pushing their growth rate above the 20% level.

The growth of Artificial Intelligence, in part fueled by the growth of the Cloud industry, has opened up a new strong revenue driver for NVIDIA in the form of Datacenter-related sales. Quoting Colette M. Kress, NVIDIA CFO, from the Q2-16 Earnings Call:

“We also benefited from both the winding adoption of deep learning and our expanding engagement with hyperscale datacenters around the world as they apply deep learning to all the services they provide.

Data Center revenue reached a record $151 million, more than doubling year-on-year and up 6% sequentially. This impressive performance reflects strong growth in supercomputing, hyperscale datacenters and grid virtualization.

Hyperscale companies remain fast adopters of deep learning, both for training and real-time inference, particularly for natural lingual processing, video and image analysis. Among them are Facebook, Microsoft, Amazon, Alibaba and Baidu. Major cloud providers are also offering GPU computing for their customers. Microsoft Azure is now using NVIDIA's GPUs to provide computing and graphics virtualization.”

Where is NVDIA Headed?

The cloud industry is growing at a breakneck speed, and machine learning is one of the important parts of the industry which also includes analytics and artificial intelligence. With all the big cloud players pushing on that front and all of them working with NVIDIA, the chip maker seems to be taking advantage of the growth in AI, and is thus on its way to becoming the number one manufacturer for chips used to power Artificial Intelligence.

Though it’s easy to lose sight after seeing how gaming numbers went up due to Pascal, and datacenter revenues went up because of deep learning, the auto segment has also been growing steadily. NVIDIA is benefiting from the growth of digital cockpits in mainstream cars and also due to the high level of interest in autonomous driving technologies, which require superior computing power on board.

As datacenter and auto revenues grow and close the gap with gaming revenues, NVIDIA's top line growth looks extremely secure and well diversified. The best part is that there is not much competition for them in these areas so they’re practically running away with the market.

Shudeep Chandrasekhar Shudeep Chandrasekhar   on Amigobulls :
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