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NVIDIA Continues Its Scorching Growth

By Danny Vena - Feb 15, 2018 at 10:45AM

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Solid gains in gaming and stellar growth in AI pushed the processor pioneer to record heights.

NVIDIA Corporation's (NVDA -2.46%) growth has been nothing short of astounding. The company has always had a solid gaming business, but no other company was better positioned to capitalize on the unexpected advancements in artificial intelligence (AI).

When the company reported the results of its fiscal 2018 fourth quarter (which ended on Jan. 28), some investors believed that NVIDIA couldn't possibly continue the blistering pace of growth it has generated over the last two years. But NVIDIA showed that it could, as the company continues to ride the AI wave, while putting up enviable growth in its core gaming business.

Just the numbers

For the just-completed quarter, NVIDIA reported record revenue of $2.91 billion, up 34% year over year -- significantly higher than the $2.65 billion the company forecast at the end of last quarter. Analysts were caught off guard as well, with a consensus estimate of $2.68 billion. 

Titan X GPU.

NVIDIA's gaming segment continues to shine. Image source: NVIDIA.

The gaming segment continues to be the company's stock in trade, generating sales of $1.74 billion, a 29% increase year over year and accounting for nearly 60% of NVIDIA's revenue. Sales of processors used for cryptocurrency mining gave the segment a boost.

NVIDIA's overachievement flowed through to the bottom line as well. GAAP net income grew 71% over the prior-year quarter to $1.12 billion.

The company has done a dynamic job of controlling its expenses, which grew more slowly than revenue, dropping more to the bottom line. Operating expenses of $728 million came in just above the high end of NVIDIA's forecast range of $600 million to $722 million, which is phenomenal considering the significant growth in revenue. 

This resulted in adjusted earnings per share of $1.72, up 52% over the prior-year quarter and flying past analysts' expectations of $1.16 per share.

It's not just fun and games

The highest-growth area of NVIDIA's business continues to be the data center segment -- which supplies processors for AI -- reaching a record $606 million, growing 105% year over year. This was the 11th consecutive quarter of sequential gains in the segment. For the just-completed fiscal year, the data center business grew to 20% of NVIDIA's total revenue, up from just 12% in the prior year.

GPUs can conduct thousands of mathematical calculations simultaneously, which makes them a standout not only for rendering graphics, but also for accelerating AI systems. NVIDIA's fortunes have grown with the increasing adoption of AI, which continues to gain speed.

Segment

Q4 2018

Q4 2017

Change (YOY)

Gaming revenue

$1,739

$1,348

29%

Professional Visualization revenue

$254

$225

13%

Data Center revenue

$606

$296

105%

Auto revenue

$132

$128

3%

OEM & IP revenue

$180

$176

2%

Total revenue

$2,911

$2,173

34%

DATA SOURCE: NVIDIA 10-K. CHART BY AUTHOR. ALL FIGURES IN MILLIONS. YOY = YEAR OVER YEAR.

The auto segment was the one unexpected laggard, growing to $132 million, up only 3% year over year. NVIDIA has been moving away from producing chips used in infotainment systems to focus more on self-driving vehicles. The company expects its investments in the space to bear fruit between 2019 and 2020, as self-driving cars begin entering the mainstream.

In reflecting on the quarter, founder and CEO Jensen Huang said:

Industries around the world are racing to incorporate AI. Virtually every internet and cloud service provider has embraced our Volta GPUs. Hundreds of transportation companies are using our NVIDIA DRIVE platform. From manufacturing and healthcare to smart cities, innovators are using our platform to invent the future.

A look ahead

For the current quarter, NVIDIA expects revenue of $2.9 billion (plus or minus 2%), which would represent year-over-year growth of nearly 50%.

NVIDIA continues to focus on the opportunities afforded by AI and self-driving cars, while never neglecting its bread-and-butter gaming processors. As long as the company continues to execute, the ongoing adoption of AI across a wide range of industries could keep it thriving for years to come.

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