Nvidia earnings beat expectations, its data center business is bigger than its gaming business for the first time ever

Key Points
  • The company's data center business outperformed the gaming unit for the first time.
  • CEO Jensen Huang expects a major second half of the current fiscal year in the video game market.
Jen-Hsun Huang, president and chief executive officer of Nvidia Corp., speaks during the company's event at Mobile World Congress Americas in Los Angeles on Oct. 21, 2019.
Patrick T. Fallon | Bloomberg | Getty Images

Shares of graphics card maker Nvidia fell as much as 2% in extended trading on Wednesday after the company reported better-than-expected fiscal second-quarter earnings and quarterly revenue guidance.

Here's how the company did:

  • Earnings: $2.18 per share, adjusted, vs. $1.97 per share as expected by analysts, according to Refinitiv. 
  • Revenue: $3.87 billion, vs. $3.65 billion as expected by analysts, according to Refinitiv.

Overall revenue rose 50% on an annualized basis in the quarter which ended on July 26, according to a statement. Revenue grew 39% in the prior quarter.

The company's gaming business produced $1.65 billion in revenue, up 26% year over year and above the $1.41 billion consensus estimate among analysts surveyed by FactSet. Even as people spent more time playing games during the coronavirus pandemic, Nvidia ended up with more data center revenue than gaming revenue for the first time, at $1.75 billion. The unit's revenue was up 167% and higher than the FactSet consensus estimate of $1.71 billion.

This follows the milestone of $1 billion in revenue in the fiscal first quarter for the data center business, which includes sales of graphics processing units that power artificial intelligence workloads for business use. The company is growing that business as it decreases its reliance on the video-game market and continues to supply products to cloud providers such as Amazon, and through acquisitions.

The data center business includes a contribution from Mellanox, a company that makes ethernet switches and other networking hardware. Nvidia closed its $7.13 billion acquisition of Mellanox in the quarter, the largest deal in Nvidia's 27-year history. Mellanox contributed 14% of Nvidia's overall revenue in the fiscal second quarter. 

Also in the quarter Nvidia said it had begun "full production" of the first graphics card based on its Ampere architecture, the A100 for data center use. Ampere gaming cards will come later; Nvidia will host a virtual event for its GeForce gaming brand on Sept. 1.

"We're expecting a really strong second half for gaming," Nvidia CEO Jensen Huang said on a conference call with analysts. "I think this may very well be one of the best gaming seasons ever." Microsoft and Sony are both expected to bring out next-generation gaming consoles in time for the holiday season.

Two smaller parts of Nvidia, professional visualization and automotive, declined during the quarter as the pandemic impacted business. Corporate customers put off purchases of workstations, and vehicle production was lower than usual, Nvidia said.

"Sales were hurt by lower enterprise demand and the closure of many offices around the world," said Colette Kress, Nvidia's finance chief. "Industries negatively impacted during the quarter include automotive, architectural engineering and construction, manufacturing, media and entertainment, and oil and gas."

Nvidia called for $4.40 billion in revenue in the fiscal third quarter, which would work out to 46% growth at the middle of the range. Analysts polled by Refinitiv had expected $3.97 billion in revenue for the quarter. Kress said Nvidia expects $1.54 billion in operating expenses for the fiscal third quarter. Analysts polled by FactSet had expected $1.10 billion.

Weeks after Bloomberg reported that Nvidia was in talks to acquire chip-architecture company Arm from SoftBank, on Wednesday Huang talked about Nvidia's work with Arm to date, without addressing acquisition plans.

We've been a long-term partner of Arm, and we use Arm in a whole bunch of applications, and whether it's autonomous driving or robotics applications, the Nintendo Switch console business that we're in, and then recently, we brought Cuda to Arm, and to bring accelerated computing to Arm, and so we work with the Arm team very closely," he said. "They're really great guys, and one of the special [things] about the Arm architecture that you know very well is that it's incredibly energy-efficient, and because it's energy efficient, it has the headroom to scale into very high-performance levels over time."

Nvidia shares are up 106% since the start of the year, while the S&P 500 index is up 4%.

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