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What to Watch When NVIDIA Reports Earnings

By Matthew Frankel, CFP® - Feb 7, 2021 at 8:42AM

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Certain parts of NVIDIA's business performed very well during the pandemic, but can the strong results continue?

NVIDIA (NVDA -2.51%) has more than doubled over the past year, and this is due to some big tailwinds to its business, fueled by the remote-work trend and stay-at-home economy of 2020. But with massive growth in the crucial data center side of its business in recent quarters, will the next earnings report be as impressive? In this Fool Live video clip, recorded on Jan. 25, contributor Matt Frankel, CFP, discusses the data center business and some of the other things NVIDIA investors should keep an eye on.

Matt Frankel: So, NVIDIA, it first got on my radar when I first started to learn about cryptocurrencies. They make graphical processing units which are specialized computers, but that's what's used in bitcoin mining. Is essentially repurposed graphics cards. So that's what first turned me on. They're the undisputed leader in graphics chips. They make their money from two big segments right now: data centers and gaming. They make the graphics processors for video gaming and that are used in data applications. The data center business has really exploded in 2020. NVIDIA's last quarter, their data center revenue was up over 160% year over year. That's one of the things I'ss really be watching going forward. Because I'm known as real estate guy at The Motley Fool. A lot of what I cover are the data center REITs, the real estate investment trusts like Digital Realty Trust (DLR 2.69%) and Equinix (EQIX 2.63%). At one point at March 2020, Digital Realty was the only stock in my portfolio that was up for the year. These are companies that did really well during the pandemic because the volume of data that's just flowing around the globe has really been accelerated due to the pandemic. Think of what we're doing right now. This is a pretty data heavy. A Zoom (NASDAQ: ZM) webinar of thousands of people watching, that's a pretty data heavy application. All that data has to live somewhere, and that's where these data centers come in. As they've had to build out their infrastructure, NVIDIA and other companies that make chips like that have been real beneficiaries. Another area that is really interesting long-term, is the autonomous vehicle applications of what NVIDIA's doing. It's a relatively small revenue driver for the business right now. It actually declined year over year, some legacy infotainment tech ran its course. They just recently announced the partnership with NIO (NIO -1.32%), the Chinese EV company, to provide the computers for their vehicles starting in 2022. I'm really excited about what that will mean for the business over the next 20 years. Not necessarily in the near term, but what the autonomous vehicle applications of NVIDIA's products will mean down the road. They report their earnings Feb. 11. I'm looking to see if the data center momentum is sustained, because like I said, that got a huge acceleration due to the pandemic. People are using social media more, people are streaming more, people are working from home. All that data has to live somewhere so they fairly have to build that out. I want to see if that was a blip or if that's really going to be a long-term acceleration of the data center space. That's what I'm watching when NVIDIA reports.

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Stocks Mentioned

NVIDIA Corporation Stock Quote
NVIDIA Corporation
$166.94 (-2.51%) $-4.30
Equinix, Inc. Stock Quote
Equinix, Inc.
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Digital Realty Trust, Inc. Stock Quote
Digital Realty Trust, Inc.
$131.10 (2.69%) $3.43
Nio Inc. Stock Quote
Nio Inc.
$16.44 (-1.32%) $0.22

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