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Nvidia Is Not Just a Graphics Chip Company Anymore

By Brian Withers and Brian Stoffel - May 1, 2021 at 7:26AM

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You might be surprised at where it's going.

Nvidia (NVDA 1.11%) built its business on state-of-the-art video processing chips for personal computers but has expanded into other high-tech segments as it's grown. On a Fool Live episode, recorded on April 14, Fool contributors Brian Stoffel and Brian Withers discuss how the company has evolved and what it's doing to stay ahead of the competition in its growing data center segment.

Brian Withers: We're moving on to NVIDIA. NVIDIA had its Analyst Day this week. If you're interested at all in the company, I suggest watching a bit of it, downloading the slides. It's super interesting. They got a ton of things going on. There was one slide that really caught my attention that I want to share with everybody.

If you haven't been paying much attention to Nvidia over the last five years you will be surprised at this slide. Over here on the left is their revenue five years ago, FY 2017. You look and gaming is the largest piece of that. Data center is a small slice, pro vis, auto, OEM and other but gaming is by far and away [the biggest segment]. It looks like it's almost two-thirds of the total. But fast-forward to fiscal year 2021 and data center now, is this massive chunk, it's actually 47% of their total revenue. If you look over here on their gross profit it's a significant portion of their gross profit. The data center has been a boom for NVIDIA and it's just been a wonderful growth driver and profit driver for them over the last five years.

It's extending its lead with its latest announcement with ARM chips, CPU grace and they are adding a third chip. They are talking about being a 3-chip company; Graphics Processing Unit, data processing units, and computing processing units which are focused on really high-end data processing needs like natural language processing, recommender systems, and AI supercomputing. Earnings come out May 20th. I really like this three-chip rotation they're going to do.

One thing I'm watching is to make sure that they have leadership in place as they take on more, they're going to need to have leaders at different levels of the company to make sure they can manage this ever-increasing complexity and multiple customer side.

Brian Stoffel: Brian, I really like that chart you showed and I saw that the gross margins for those data center chips are really high. If I'm Google or Microsoft or AWS, and I'm thinking about this, I would start to think about making my own chips. Is that something that worries you or do they have such a huge head start that it doesn't matter?

Brian Withers: [It's] a little bit of, results matter. Certainly, their growth over the last five years has shown that they can do it. The other piece that's interesting along with this ARM announcement is that they partnered with AWS and Amazon to make their next round of dataset chips for their AWS boxes. It's a little bit of a partnership, "cooper-atition" thing, where Amazon gets to influence the design of the chips and NVIDIA with hopefully, the ARM acquisition goes through, but even if it doesn't, I think they're going to cooperate on this deal, and deliver these chips, and become even smarter and more embedded in the data center. I think it's a great question and it'll be interesting to watch, this Amazon partnership come to fruition.

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