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3 Things NVIDIA Corporation's Management Wants You to Know

By Chris Neiger – Nov 15, 2016 at 3:15AM

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The company's key business segments are growing fast, and there's still much to look forward to.

Image source: Getty Images.

NVIDIA (NVDA -1.51%) had a great fiscal third quarter by nearly all standards. The company's revenue came in at $2 billion, up 54% year over year, and GAAP gross margin hit 59%. Revenue and gross margin both beat estimates, as did the company's non-GAAP diluted earnings per share, which were $0.94 -- up an amazing 89% year over year.

So what contributed to the company's stellar third quarter? We can glean some answers from NVIDIA's earnings call late last week.  

Gaming is going strong

NVIDIA made 62% of its total revenue from its gaming segment in the third quarter. Gaming is still one of the company's fastest-growing businesses: Its revenue shot up 63% year over year, and the segment brought in a record $1.24 billion in the quarter.

NVIDIA's CEO, Jen-Hsun Huang, said that this growth was "fueled by our Pascal-based GPUs" and that "[d]emand was strong in every geographic region across desktop and notebook and across the full gaming audience from GTX 1050 to the Titan X."

Huang is bullish on the long-term prospects of the gaming market -- and NVIDIA's place in it -- and mentioned on the call that "[t]he fundamentals of the gaming market remain strong." 

But it's the company's Pascal-based chip architecture that Huang gives most of the credit to for a strong gaming quarter: 

"A great experience requires a high performance GPU, and we believe we are still in the early innings of these evolving markets. Pascal represents not only the biggest innovation gains we've made in a single GPU generation in a decade, it's also our best executed product rollout."

NVIDIA is smartly handling its other businesses as well

The Pascal architecture is also helping the company's professional visualization segment, which grew by 9% in the quarter. Huang said on the call: "We are seeing strong customer interest in the Pascal-based P6000 among digital entertainment leaders like Pixar, Disney, and ILM, architectural, engineering, and construction companies like Japan's SHIMIZU, and automotive companies like Hyundai."

He said that most of the growth in this segment came from growth in the high-end markets for real-time rendering and mobile workstations. 

In the company's data center segment, revenue nearly tripled year over year, hitting $240 million. Huang said that this was driven in part by growth in the artificial intelligence (AI) market and the need for more supercomputing components. He also mentioned that he doesn't expect this trend to reverse anytime soon, saying, "GPU deep learning is revolutionizing AI and is poised to impact every industry worldwide."

Finally, Huang pointed to the company's strong moves in the automotive space as a key revenue driver this quarter as well. Automotive revenue came in at $127 million, up 61% year over year. 

"NVIDIA is developing an end-to-end AI computing platform for autonomous driving. This allows car makers to collect and label data, train their own deep neural networks on the video GPUs in the data center, and then process them in the car with DRIVE PX 2," he said on the call. 

Huang also pointed to the company's growth in automotive partnerships, like its development of cloud-to-car HD maps and level 3 autonomous driving (which requires drivers to intervene only in critical situations) with Baidu, and its AI-based cloud-to-car mapping system partnership with TomTom. And, of course, Huang highlighted its new semi-autonomous driving partnership with Tesla as a sign of future automotive growth for the company. 

Strong expectations for the fiscal fourth quarter

Last, but certainly not least, NVIDIA's management spoke briefly about the company's fiscal-fourth-quarter outlook on the call. NVIDIA's executive vice president and CFO, Colette Kress, said: "[W]e expect revenue to be $2.1 billion, plus or minus 2%. Our GAAP and non-GAAP gross margin are expected to be 59% and 59.2%, respectively, plus or minus 50 basis points."

While $2.1 billion in revenue would only be a slight increase from the fiscal third quarter, it would mark a 50% increase year over year. Additionally, holding gross margin steady at 59% would mean the company should continue bringing in strong profits from its sales. 

Investors should be very pleased with NVIDIA's ability to grow all of its major business segments this quarter, as well as with the company's continued commitment to expanding its technology offerings and partnerships. With a rosy outlook for the fiscal fourth quarter, it's clear NVIDIA investors have much to look forward to. 

Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Baidu, Nvidia, Tesla Motors, and Walt Disney. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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