NVIDIA (NVDA 1.48%) reported robust fiscal third-quarter 2018 results on Nov. 9. The graphics-chip specialist's revenue grew 32%, GAAP earnings per share (EPS) soared 60%, and EPS adjusted for one-time factors jumped 41%. Revenue and earnings both comfortably beat Wall Street's expectations.
A string of strong quarterly results have propelled NVIDIA stock to a return of 98.6% in 2017, through Friday, versus the S&P 500's 17.4% return.
There was a wealth of information covered on the analyst conference call following the earnings release. Following are three key things that you should know.
The growing adoption of artificial intelligence (AI) is helping power NVIDIA's business. Image source: Getty Images.
For reference, here are how NVIDIA's market platforms performed in the quarter.
|
Platform |
Q3 Revenue |
Change (YOY) |
|---|---|---|
|
Gaming |
$1,561 million |
25% |
|
Data center |
$501 million |
109% |
|
Professional visualization |
$239 million |
15% |
|
Auto |
$144 million |
13% |
|
OEM and IP* |
$191 million |
3% |
|
Total |
$2,636 million |
32% |
Data source: NVIDIA. YOY = year over year. *OEM and IP = original equipment manufacturer and intellectual property.
1. The Volta-driven data-center growth party is just beginning
From CEO Jensen Huang's remarks:
[There are] a lot of reasons to be hopeful about the future growth opportunities for Volta. We've primed the pump. So cloud service [providers] either [have] announce[d] the availability of Volta or they announced the soon availability of Volta. They're all racing to get Volta to their cloud because customers are clamoring for it. The OEMs [original equipment manufacturers] ... are racing to get [servers built around] Volta to production.
NVIDIA's data-center revenue grew a torrid 109% year over year, thanks to the rapid adoption of its Tesla V100 accelerator, its first product based on its newest graphics processing unit (GPU) architecture, Volta. The company began shipping the product in the latter part of the second quarter. As Huang noted, all of the world's major cloud service providers have or will soon upgrade to Volta, from products based on NVIDIA's Pascal architecture, and server makers are also rapidly upgrading.
NVIDIA expects its data-center platform to be a significant growth driver, thanks largely to enthusiastic adoption of its GPU-based deep-learning approach to AI. While there are other approaches to AI to keep an eye on, a new potential threat on NVIDIA's home turf just emerged: Earlier this month, Intel poached Advanced Micro Devices' former graphics head, so NVIDIA can expect competition from the chip giant in discrete GPUs.
2. Expect gaming to have a "great" fourth quarter
From Huang's remarks:
And so I think all of these different drivers [rising popularity of e-gaming, increasing quality of content, and sharing on social media] are helping our gaming business, and I'm optimistic about Q4. It looks like it's going to be a great quarter.
Based on Huang's comments, investors can probably expect NVIDIA's gaming business to have a super holiday quarter. Gaming is particularly important because it's still the company's largest market platform, accounting for 59% of total revenue in the third quarter.
NVIDIA has the top market position in discrete GPUs for gaming. Whether AMD's graphics card based on its new Vega architecture helps it succeed it gaining market share during the holiday quarter and beyond remains to be seen. NVIDIA investors shouldn't be concerned though, at least not at this point. The overall gaming market is growing, so NVIDIA's gaming business could still grow nicely even if it were to lose some share.
Image source: Getty Images.
3. Timeline for revenue growth from driverless vehicle platform
From Huang's remarks:
[M]y expectation is that this coming year [2018], we'll enjoy revenues as a result of the supercomputers that customers will have to buy for training their networks, for simulating ... driving [situations]. And we'll see fairly large quantities of development systems being sold this coming year. The year after that [2019], I think, is the year when you're going to see the robotaxis ramping, and our economics in every robotaxi is several thousand dollars. And then starting, I would say, late 2020 to 2021, you're going to start to see the first fully ... autonomous cars ... starting to hit the road.
NVIDIA's auto platform is relatively small, generating 5.5% of total revenue in the third quarter. Most of this revenue comes from sales of its Tegra processors for powering automakers' infotainment systems, but that's on track to change. The company has been laying the groundwork to profit princely from the imminent arrival of autonomous vehicles.
In the spring of 2016, NVIDIA began shipping its DRIVE PX 2 AI computing platform, a supercomputer for taking in and interpreting the surroundings of semi-autonomous and fully autonomous vehicles. More than 225 car and truck makers and others are developing with it. The platform is used in all of Tesla's vehicles, as well as Audi's new 2018 A8, and Toyota and Mercedes-Benz have adopted the platform for vehicles that are planned for launch within five years. Chinese tech giant Baidu has also adopted it for its self-driving vehicle initiatives.
In the third quarter, NVIDIA announced an extension of its platform to include DRIVE PX Pegasus, which is the world's first platform for Level 5 (fully autonomous) robotaxis. NVIDIA is working with several companies that are developing robotaxis, though no official partnerships have been announced yet.
