Nvidia (NVDA): Buy a share and you own the future
Is Nvidia (NVDA) a buy after its impressive Q2 earnings?
- Q2 Figures:
For the quarter that ended on August 1st, Nvidia generated a record $6.51 billion in revenues, exceeding the expected $6.33 billion. Revenue rose 68% annually whereas, in the previous quarter, sales grew 84%. Adjusted earnings amounted to $1.04, exceeding expectations of $1.01.
- Graphics Segment:
The segment which is primarily made up of graphics cards grew 87% to $3.91 billion or more descriptively, faster than the compute and network segment, which includes chips for data centers, which grew 46% to $2.6 billion.
- Gaming Market
When it comes to markets, gaming was one of the highlights, its sales went up 85% compared to last year and reached $3.06 billion. This increase is owed both to GeForce graphics card sales and the chips it sells to game console makers, such as the processor which is at the heart of the Nintendo Switch.
- Data Center Business
Due to graphics cards for data centers, both industrial use and among cloud providers, this business also hit an all-time high as it grew 35% annually to $2.37 billion.
- Professional Visualization
The segment that consists mostly of graphics cards for high-end professional workstations went up 156% annually to $519 million. Its automotive business remains a small portion of the company’s sales, with sales of $152 million, down sequentially from the previous quarter but up 37% from last year’s respective quarter that was shaped by the global pandemic that halted auto production.
- CPM Fell Short
The company’s new Cryptocurrency Mining Processor (CMP), the dedicated chips it makes for cryptocurrency mining, failed to hit Nvidia’s own predictions. It reported $266 million in cryptocurrency card sales, as opposed to $400 million it predicted, making the prediction 33% off. CMP sales were likely impacted by China’s cryptocurrency crackdown as miners were selling off used graphics processing units.
Nvidia says its cryptocurrency cards are an effort to ensure there is sufficient chip supply for gamers and it applied software to its GPUs to prevent them from mining cryptocurrencies. Going forward, Nvidia’s CFO, Colette Kress, expects a "minimal contribution" from CMP sales.
Potential Dangers :
Supply issues that began late last year are still in the air, as Nvidia’s latest line of graphics cards has remained mostly sold out in stores and it was seeing longer lead times throughout its supply chain. But this is not a surprise as the company announced back in May that it expected supply issues to persevere throughout the second half of the year. This time around, it revealed it expects GPU supply constraints for the ‘vast majority of 2022 as well.
Data centers — the computing units that form the backbone of cloud computing — are also ramping up their use of GPUs, putting them to work as computing accelerators to handle complex workloads and applications like artificial intelligence (AI).
Nvidia has had a flurry of innovation on this front in recent years, unleashing a slew of new chips designed for these data center customers. It also made the acquisition of networking hardware company Mellanox early last year to bolster this emerging area of expertise. As a result, the data center segment hauled in $2.37 billion in sales in Q2 and has been steadily catching up to the gaming unit in size.
For comparison, when the cryptocurrency crash of 2018 sent Nvidia sliding backward (during Nvidia’s fiscal 2019), data centers represented only about one-quarter of total revenue. They now account for more than one-third of the total.
Nvidia is only just getting started on this front, too. Some of its more recent hardware announcements for data centers haven’t even begun to be commercialized yet. This is a huge segment of the semiconductor industry that has long been dominated by Intel. Tens of billions in annual sales are up for grabs if Nvidia’s innovations can continue to steadily garner momentum.
For the undergoing quarter, Nvidia expects $6.8 billion in revenue exceeding Refinitiv expectations of $6.5 billion. The company is in a period of sustained, massive growth in its business as semiconductors are in short supply across the globe while the demand for the kind of processors it specializes in is skyrocketing. Not surprisingly, over the last year, its shares are up over 57%. Granted, another uptick in cryptocurrency activity would help, but it isn’t a primary catalyst for this chip designer. This is the best long-term semiconductor investment around, as it benefits from multiple secular growth trends in the global economy.
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August 26, 2021 at 10:37AM