The 27-year-old Nvidia turned a significant corner on Wednesday, having its quarterly data-center sales surpass its videogame chip business for the first time since the company’s inception.
Long known for its graphics cards and chips suited for playing videogames, Nvidia has slowly made inroads into selling data-center semiconductors, in large part because the graphics processing units that are good for games are also capable of tackling complex artificial intelligence and machine-learning tasks too. Despite revenue damage to two of its segments because of the Covid-19 pandemic, the company’s fiscal-second quarter handily beat the consensus estimates.
“Our new Ampere [graphics processing unit] architecture is sprinting out of the blocks, with the world’s top cloud service providers and server makers moving quickly to offer NVIDIA accelerated computing. Mellanox grew sharply, driven by the need for high-speed networking in cloud data centers to scale-out AI services,” Nvidia CEO Jensen Huang said. Ampere is the company’s latest graphics processing unit chip design.
Shares of Nvidia were down 1.2% in premarket trading Thursday as investors digested the results. The stock closed the regular session down 1% to $485.54.
The chip maker reported GAAP (or generally accepted accounting principles) second-quarter earnings of $622 million, which amounts to 99 cents a share, compared with earnings of $552 million, or 90 cents a share, in the year-ago period. Nvidia reported adjusted, or non-GAAP, earnings of $2.18 a share compared with $1.24 a share a year ago.
Wall Street expected GAAP earnings of $1.02 a share and adjusted earnings of $1.97 a share.
Sales rose to $3.87 billion, beating the consensus of $3.66 billion and topping the year-ago total of $2.58 billion. Its data-center sales grew 167% to $1.75 billion compared with a year ago, which included the Mellanox acquisition. Mellanox contributed 30% of the segment’s revenue. Videogame sales rose 26% to $1.65 billion.
Data-center business was expected to generate sales of $1.62 billion and videogame’s haul was predicted to be $1.43 billion.
Nvidia said it expected fiscal third-quarter sales of $4.4 billion plus or minus 2%, which topped the consensus estimate of $3.96 billion.
“We’re expecting a really strong second-half for gaming,” Huang said in the conference call Wednesday. “I think this may very well be one of the best gaming seasons ever, and the reason for that is because PC gaming has become such a large format.”
In an interview with Barron’s, Nvidia CFO Colette Kress said that generally the refresh cycle for gaming is about three and a half years and the company is seeing the number of videogame players rise by roughly 25%.
In terms of selling Nvidia-powered graphics hardware to the new gamers, Kress said that the company hasn’t ramped up marketing spending, relying instead of word of mouth and the company’s reputation.
“A good part of portfolio markets itself,” Kress said in the interview.
Because of the videogame segment’s relative strength, Huang said in the conference call that it’s likely to mean data center will be a lower percentage of overall revenue in the fiscal-third quarter, compared with the fiscal-second quarter.
The company’s two other key segments, professional visualization and automotive, reported sales of $203 million and $111 million respectively, which Huang said was due to the impact of the Covid-19 pandemic.
Shares of Nvidia have more than doubled this year, as the S&P 500 index advanced 4.6%. The PHLX Semiconductor index has gained 18.8% in 2020.
Write to Max A. Cherney at max.cherney@barrons.com
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