NVIDIA (NASDAQ:NVDA) turned in strong third-quarter 2018 results earlier this month. The graphics-chip specialist's revenue jumped 32%, GAAP earnings per share soared 60%, and adjusted earnings per share (EPS) surged 41%. 

A wealth of information about the company's performance and future prospects was covered on the earnings call. One of the best gems was CEO Jensen Huang's outlining of gaming's three key growth drivers, which are listed below.

Gaming is ultraimportant because it's NVIDIA's largest business, by far, accounting for 59.1% of total revenue in Q3, with revenue leaping 25% year over year in the quarter. Data center accounted for 19% of revenue, professional visualization for 7.2%, OEM and IP (original equipment manufacturers and intellectual property) for 9.1%, and auto for 5.5%.

Two video gamers, one dressed in red and one in blue, sitting at desk facing each other with audiences for each side shown cheering in the background.

Image Source: Getty Images.

1. Soaring popularity of esports

From Huang's remarks:

And what drives our gaming business is several things. As you know, eSports is incredibly, incredibly vibrant, and what drives ... eSports is ... people want to win and having better gear helps. The latency that they expect is incredibly low, and performance drives down latency and they want to be able to react as fast as they can. 

For those not familiar, esports generally refers to multiplayer video game competitions, particularly between professional players. Similar to traditional professional sports, tournaments for esports have sprung up, which are broadcast live and provide prize money. NVIDIA CFO Colette Kress shared some amazing esports stats earlier this year on the Q1 call:

  • NVIDIA's GeForce was the graphics platform of choice at all of the top esports tournaments, including the finals of the Big 4 international competitions.
  • Esports is now as popular among U.S. male millennials as America's favorite pastime, baseball.
  • More people watch gaming than HBO, Netflix, ESPN, and Hulu combined

That last stat blows me away, given Netflix's humongous reach. As for the second item, millennial males are a very desirable demographic for marketers, since this group is huge in size and young, so they have potentially many years of being a customer ahead. 

2. Increasing quality of video game content

From Huang's remarks:

The second growth driver for us is ... the quality of content. [I]f you look at [Activision's] Call of Duty or Destiny 2 or PUBG [PlayerUnknown's Battlegrounds], the content just looks amazing. ... And one of the things that's really unique about video games is that in order to enjoy the content and the fidelity of the content, the quality of the production value at its fullest, you need the best gear. ... And so when AAA titles comes out in the later part of the year, it helps to drive platform adoption.

Huang said that quality of video games from the top companies is increasingly improving, so it makes sense that more people around the world are getting into gaming. Naturally, many of those people want to be able to enjoy the video games to their fullest, so they're purchasing what they consider to be the best graphics cards -- NVIDIA's GeForce cards.

NVIDIA has the top market position in discrete graphics processing units (GPUs) for gaming, with rival Advanced Micro Devices lagging behind. In Q3, NVIDIA commanded 70.9% share for discrete GPUs for desktops versus AMD's 29.1%. NVIDIA gained ground from Q2, when it held a 70% share, according to Jon Peddie Research. The size of the market -- technically called the "add-in board" market -- increased 38.2% from Q2.

Dark purplish-blue background that looks like a scene of destruction with a glass building knocked over and rubble around; rose-colored robotic creature on right side.

NVIDIA's Ansel enables gamers to capture in-game screenshots that can be viewed in 360 degrees and shared with others via cellphone, PC, or virtual reality headset.

3. Sharing of video game experiences 

From Huang's remarks:

[L]astly, increasingly, social is becoming a huge part of the growth dynamics of gaming. People ... recognize how beautiful these video games are, and so they want to share their brightest moments with people. They want to share the levels they discover. They want to take pictures of the amazing graphics [that are] inside. ... And now with our Ansel, the world's first in-game virtual reality and surround and digital camera, we have the ability to take pictures and share that with people.

This growth driver might surprise many nongamers. The good news for NVIDIA investors is that they're profiting from this sharing culture, which is particularly strong among the young -- and not just with respect to the company's gaming business. On Q2's earnings call, Huang said that the company views video transcoding as an emerging application for its GPUs in its data-center business.

This process enables people to share their videos with a larger audience. It involves taking compressed (or encoded) content, decompressing it, changing the format, and then recompressing it.