Nvidia (Nasdaq: NVDA) is one of the world's leading chip companies. Its earnings report is highly anticipated as it gives insight into the health of the technology sector. Nvidia provides chips for cloud computing, gaming, data centers, AI, machine learning, self-driving, cryptocurrency mining, and a multitude of other sectors. These are some of the fastest-growing components of the tech sector.
As these areas have grown, Nvidia has thrived. Over the last decade, its stock is up 4,480%. Its success is due to winning a dominant market share in these expanding markets. Its major revenue source is its graphic processing chips which are used for video games but are also used for AI and cloud computing due to their parallel processing capabilities.
Inside the Numbers
Nvidia's third-quarter results show that the company has retained this momentum. The company earned $2.91 per share which beat consensus expectations of $2.57 per share. Revenue increased 57% from the previous year to $4.73 billion which also beat analysts' expectations of $4.4 billion.
The bulk of Nvidia's growth came from its compute and networking segment, which was up 146% from a year ago to $1.94 billion. Its graphics segment was up 25% from last year to $2.79 billion.
Gaming revenue increased by 37% to $2.3 billion. Sales were high due to the pandemic which led to an uptick in gaming and the launch of Nvidia's RTX graphic cards. Management expects a strong Q4 due to video game demand especially as new consoles are coming from Microsoft and Sony.
Last quarter, Nvidia's data center line item surpassed gaming revenue for the first time. This quarter, Nvidia reported $1.9 billion in sales in the data center market, behind the gaming division, although it increased by 162% from the same period last year, driven by sales of Ampere graphics chips. Nvidia also said on Wednesday that its purchase of Mellanox, which closed earlier this year, contributed 13% to total company revenue and about a third of data center revenue.
In the long-term, data center revenue will exceed that of gaming due to a potential larger market size. However, data center revenue was slightly less than expected due to less than expected orders from China. Guidance came in slightly better than expected.
In September, Nvidia said it planned to buy ARM from SoftBank for $40 billion, in a move seen as having significant implications for the semiconductor industry. ARM develops technology widely used across the industry to develop low-power chips for mobile devices and supplies technology to most of Nvidia's competitors. Nvidia said on Wednesday that it expected to close the ARM acquisition in the first quarter of 2022.
Stock Price Impact
Another potential looming issue for Nvidia is its planned acquisition of ARM from Softbank for $40 billion. ARM designs chips used by companies across the industry including Nvidia's competitors, so there are many questions about whether the deal will actually go through.
In terms of its stock price, Nvidia is like a lot of growth stocks which delivered strong results but share prices met the news with a shrug. It's a sign that the market was expecting this good news, and shares may need a period of time to let valuations "catch up".
Given that many tech stocks have been battered in recent weeks with the rotation from growth to value, Nvidia's stock being flat is impressive. Given Nvidia's strong growth outlook and its dominant position in several markets which are growing at a double-digit rate annually over the next decade, it's likely that the stock will eventually move higher.