NVIDIA (NASDAQ:NVDA) has been stepping up its data center game for a while now. Last quarter's results indicate the effort has been worth it. Gaming is still the company's single biggest source of revenue, but data center sales saw a big year-over-year jump -- so big, in fact, that NVIDIA could justify pouring more time and resources into the market, now that it's proved it can do well in it.

Data centers are the growth engine

For the three-month stretch ending on April 26, NVIDIA turned $3.08 billion of revenue into an adjusted per-share profit of $1.80. The top line was up 39% year over year, and adjusted earnings more than doubled from $0.88 per share in the prior-year quarter. Both numbers topped analysts' expectations, just as the company's revenue guidance for the current quarter did.

Rising arrow drawn by business man, accelerating from 2019 into 2020

Image source: Getty Images.

That wasn't the most interesting aspect of NVIDIA's quarterly report, however. Far more intriguing was the $1.14 billion in data center technology sales. A year earlier, that figure was a much more modest $634 million. The quarterly tally trails gaming-related sales, which hit $1.34 billion for the first fiscal quarter, but ts data center business is growing much faster than any other segment. At its current pace, data center will overtake gaming as the company's biggest breadwinner. As history indicates, this is a fairly new development.

Historical quarterly revenue of NVIDIA business divisions.

Data source: Thomson Reuters/Refinitiv. Chart by author.

News coverage of the numbers broadly suggested coronavirus-related lockdowns meant that companies were forced to improve their remote-work capabilities on the fly, generating demand for data center technology. And to be fair, the contagion likely did spur some fresh, unexpected demand.

That's not how data centers usually work, though. A great deal of the data center hardware business booked by NVIDIA last quarter was likely planned before COVID-19 came into view. The launch of the DGX A100 5-petaflop artificial intelligence (AI) system didn't happen until after the quarter began, but it was based on a design that was likely finalized before the COVID-19 outbreak.

Ditto for Jarvis, an app platform that lets organizations tweak the use of AI in a variety of self-customized ways. It was launched last quarter, but prospective users are still kicking the tires. It can take months to just select and plan a data center's architecture. Enterprise customers didn't simply set up and pay for a data center in a matter of weeks. Ergo, if NVIDIA sold it last quarter, it was a sale that was apt to be set up well before the quarter began.

To that end, one can readily see on the graphic above that data center sales had been ramping up for a couple of quarters even before the recently completed quarter got going.

The implications

NVIDIA isn't going to abandon gaming in favor of data centers. While Advanced Micro Devices has been stealing some graphics processing market share from NVIDIA, numbers from data tracker Business Quant say it remains the clear leader in the graphics processing unit (GPU) market, which is NVIDIA's biggest business. It's a market worth fighting for.

It's also worth noting that despite NVIDIA's data center growth last quarter, it still has only a small fraction of the data center computing market. Intel remains the powerhouse in the arena, leaning on its popular and more conventional data center technology -- based on central processing units (CPUs) -- to generate more than $23 billion in data center hardware revenue last year. NVIDIA has its work cut out for it if it's going to persuade enterprise-level customers that GPUs are a better fit than CPUs for the data centers of tomorrow.

Given the sales trajectory, though, NVIDIA can now further prioritize the development and sale of data center technologies. It's proved itself to be a player.

It would be time (and effort) well spent. Market researcher Mordor Intelligence reports the size of the global GPU market was just under $21 billion as of last year, but the realization of GPUs as a powerful alternative to CPUs (particularly in AI) leads Mordor to conclude the GPU market will be worth more than $100 billion by 2024.

That growth pace jibes with Gartner's outlook on data center infrastructure. The research and advisory company says that market should expand from last year's $155 billion to $230 billion by 2025. All of this hardware will need some sort of technological brain to power it. NVIDIA wouldn't even have to win much of that business to secure impressive growth during that time frame.

Last quarter's impressive data center growth against the odds says that this trend was already gaining momentum, even before the integration of its acquisition of Mellanox Technologies, a supplier of computer networking hardware.