When NVIDIA (NVDA +0.64%) reported earnings after the market close on Wednesday, there was a development that many who watch the company have long anticipated: NVIDIA's data center segment, which includes processors used in artificial intelligence (AI) systems, cloud computing, and data centers, has became its primary breadwinner.
The revenue generated by the segment surpassed sales of the graphics processing units (GPUs) used in video games, which has been the company's bread and butter.
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Overall, NVIDIA's revenue of $3.87 billion grew 50% year over year. While gaming revenue of $1.65 billion increased a respectable 26%, sales within the data center segment soared 167% to $1.75 billion.
Just four years ago, the business didn't really move the needle, with revenue of just $151 million, amounting to 11% of sales. Today, sales from the data center segment are up more than tenfold and represent more than 45% of sales, as well as becoming the company's primary growth driver.
GPUs from NVIDIA have become a staple in data centers. The secret sauce is their parallel processing capability, or the ability to handle multiple complex mathematical calculations all at once. It turns out that this is not only optimal for rendering lifelike images in video games, it also works just as well for accelerating processing in AI systems and cloud computing.
The broader adoption of the cloud and AI over the past several years has driven the segment's growth, but the outbreak of the coronavirus pandemic has accelerated the adoption of cloud computing and the need for these specialized GPUs, playing to one of NVIDIA's greatest strengths and helping push its stock up more than 100% so far this year.
NVIDIA recently launched its latest data center processors to rave reviews and strong demand, while its next-gen gaming chips are expected to be released tomorrow.
