Nvidia (NVDA -0.57%) stock is one of the most followed stocks in the market. That's because shares of the artificial intelligence (AI) chip leader have been performing fantastically, and investors are optimistic about the company's long-term growth potential.
If you're considering investing in Nvidia stock, it's extremely helpful to know how the company makes its money.
Where is Nvidia's revenue coming from?
The following chart shows the company's revenue breakdown by platform for its most recently reported quarter.
|
Platform |
Revenue Fiscal Q4 2024 (Ended Jan. 28) |
Percentage of Total Fiscal Q4 2024 Revenue* |
|---|---|---|
| Data center |
$18.4 billion |
83% |
| Gaming |
$2.9 billion |
13% |
| Professional visualization |
$463 million |
2% |
| Automotive | $281 million | 1% |
| OEM and other | $90 million | Less than 1% |
|
Total |
$22.1 billion |
100% |
Data source: Nvidia. OEM = original equipment manufacturer; OEM and other is not a target market platform. *Calculations by author.
Together, Nvidia's data center and gaming platforms accounted for 96% of its total revenue in its most recently reported quarter. So, the performances of its other platforms currently make little difference in the company's overall financial results.
Nvidia's dynamic duo platforms: Data center & gaming
Nvidia's data center platform supplies graphics processing unit (GPU) chips and related products for speeding up the processing of AI and high-performance computing workloads. This platform's revenue growth has significantly revved up over the last year because companies and other entities across industries are hungry to acquire generative AI capabilities. This new tech, which powers OpenAI's wildly popular ChatGPT chatbot, greatly increases the potential applications for AI.
Demand for Nvidia's data center GPU, the H100, and related products has been so mighty that the company's supply can't keep up with it. Moreover, management expects powerful demand for the H100's successors launching this year -- H200 and B100, the first GPU based on the company's new Blackwell architecture.
Nvidia is the world's No. 1 supplier of graphics cards -- under the GeForce brand -- for computer gaming, a market that has grown steadily. In the fourth quarter of 2023, it had an 80% share of the desktop discrete GPU market, according to Jon Peddie Research. Advanced Micro Devices (AMD) captured a 19% share, while market newcomer Intel had a 1% share.
How fast are Nvidia's platforms growing revenue?
|
Platform |
Fiscal Q4 2024 Revenue Growth YOY |
|---|---|
| Data center | 409% |
| Gaming | 56% |
| Professional visualization | 105% |
| Automotive | (4%) |
| OEM and other | 7% |
|
Total |
265% |
Data source: Nvidia. YOY = year over year.
As shown in the top table, Nvidia's data center platform accounted for 83% of its total revenue in its most recently reported quarter. This percentage will continue to rise if the data center continues to grow faster than the other platforms.
Where is Nvidia's profit coming from?
Nvidia doesn't break out any form of profits by platform in its quarterly earnings releases. But we can make good deductions about this topic by using data it provided in its recent 10-K filing with the Securities and Exchange Commission (SEC). In this document, Nvidia breaks out its fiscal year 2024 revenue and operating income by its two reporting segments, and lists what business components are included in each segment.
|
Segment |
Revenue Fiscal Year 2024 (Ended Jan. 28) |
Percentage of Total Fiscal Year 2024 Revenue* |
Operating Income Fiscal Year 2024 |
Percentage of Total Fiscal Year 2024 Segment Operating Income* |
|---|---|---|---|---|
| Compute and networking | $47.4 billion | 78% |
$32.0 billion |
85% |
| Graphics | $13.5 billion | 22% | $5.9 billion | 15% |
| Segment total | $60.9 billion | 100% | $37.9 billion | 100% |
Data source: Nvidia. *Calculations by author.
The compute and networking segment is more profitable than the graphics segment. In Nvidia's fiscal year ended Jan. 28, the compute and networking segment's operating income (or operating profit) contributed 78% of the company's total revenue, and an even greater percentage of its total segment operating income. The opposite is true of the graphics segment.
Nearly all parts of the data center platform are included in the compute and networking segment, according to the 10-K filing. So, we can deduct from this fact and the chart data that Nvidia's data center platform is more profitable than its overall business.
A winning formula for Nvidia stock
Nvidia's profits (or "earnings") are growing faster than its revenue because its fastest growing platform, the data center, is more profitable than its overall business. This is a winning formula for powering its stock price higher.
This dynamic is poised to continue for the quarter ending in late April. Management has guided for the quarter's revenue to grow 234% and adjusted earnings per share (EPS) to soar 396% year over year.
