There was plenty to unpack (and a lot to like) from the NVIDIA (NVDA +1.20%) fourth-quarter earnings report. The company's 61% year-over-year revenue growth that was driven by record video gaming and data center sales captured the headlines. But NVIDIA is benefiting from other trends in the economy too, namely cryptocurrencies, autonomous vehicles, and energy efficiency. Here's why that matters.
Separating gaming hardware from crypto hardware
Cryptocurrency prices have soared in the last year, along with a renewed interest in "mining" (simply, when a computer is used to create more of a cryptocurrency). NVIDIA's graphics processing units (GPUs) are built for high-end video games, but they're programmable and ideal for handling cryptocurrency work too. Thus, it seems many commercial miners have started picking up NVIDIA's new RTX 30 series GPUs and have added to the massive demand the company has experienced since the new processors were announced last autumn.
Image source: Getty Images.
Demand is good. But the last time there was a boom in digital currency prices like Bitcoin (BTC +2.54%) and Ethereum (ETC +2.35%) a few years ago, the ensuing downturn in crypto prices dragged NVIDIA's stock along with it as its GPU sales slowed. Management wants to make sure its RTX 30 series GPUs end up in the hands of gamers, not crypto miners, so it reduced the hash rate (the processing power for a cryptocurrency network) on its RTX 3060 (the cheapest GPU in its 30 series) by half to discourage its use in this fashion.
That's not to say NVIDIA is leaving miners out in the cold, though. It simultaneously released a new chip specific for crypto miners: the CMP, or Cryptocurrency Mining Processor. This will help the millions of gamers around the world waiting in line for an RTX 30 series GPU and fulfill demand for commercial digital currency miners. As CFO Colette Kress explained on the earnings call:
Since our GPUs are sold to graphics card manufacturers and then on to distribution, we don't have the ability to accurately track or quantify their end-use. Analyst estimates suggest that crypto mining contributed $100 million to $300 million to our Q4 revenue, a relatively small portion of our Gaming revenue in Q4.
CMPs will start shipping in March and will give NVIDIA some increased clarity on where their hardware is being used. Kress said CMPs could contribute about $50 million in revenue in Q1, a significant sum for a brand new chip launching two-thirds of the way into the new quarter. Digital currency is picking up steam and adoption is growing, so this move bodes well for NVIDIA long term.
What gives with the automotive segment?
NVIDIA hit it out of the park with its Q4 report, but not everything was perfect. Its automotive segment revenue ($145 million, just shy of 3% of total sales) fell 11% compared to a year ago. What happened to NVIDIA, the leader in autonomous vehicles and advanced driver-assist systems?
First, it's important to bear in mind this segment is in decline because the company has chosen to sunset its legacy infotainment business. But its AI cockpit and self-driving software development is building momentum. Kress said on the call that NVIDIA is growing the list of electric vehicle makers that are signing on to its NVIDIA DRIVE platform for autonomous vehicles. Mercedes-Benz also signed a large deal last year to expand its use of AI cockpit tech. Kress explained: "We are in the early innings of a significant opportunity. We have built a multi-billion dollar design win pipeline for our self-driving AI cockpit solutions, which will drive a material inflection in revenue over the next few years."
Given the auto segment hauled in just $536 million in sales last year, that pipeline of new business will be significant. Investor patience will pay off here as electric and autonomous vehicle tech gradually picks up momentum.
Cloud computing equals energy efficiency
There has been much talk of the poor condition of the nation's energy grid. Renewable energy and carbon footprint reduction is gaining traction, and it appears the Biden administration will support these endeavors. NVIDIA could be a beneficiary here.
Computing power is increasing, but with greater computational power comes greater energy consumption. However, NVIDIA's data center hardware (which is being implemented at a rapid rate to handle AI and other data-intensive tasks) doesn't just act as a computing accelerator. Its next-gen cloud computing devices are also energy efficient, and Kress said a growing list of companies are using NVIDIA to adopt cloud computing and meet climate change goals.
By way of example, Kress said the NVIDIA A100 (the GPU at the heart of its data center business) "performs AI computations with one-twentieth the power consumption of CPUs" -- or central processing units, the old industry standard general computing chip. In this new age of cloud computing, the A100 puts NVIDIA at an advantage not just in terms of computing power, but also as an ancillary play on climate change and lower energy consumption. With a new upgrade cycle in data center hardware just getting underway, this division is expected to continue growing for the foreseeable future.
NVIDIA is quickly emerging as the leader in next-gen semiconductors and compute systems, and the Q4 report reinforces this. The company is helping pioneer tech advances on many fronts as a new era dominated by cloud computing and AI gets underway. The reasons for staying invested for the long haul keep growing.
