How NVIDIA Corp. Crushed the Second Quarter

By Markets Fool.com

Image source: NVIDIA.

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NVIDIA (NASDAQ: NVDA) reported results for the second quarter of fiscal year 2017 on Thursday night, and its share prices rose as much as 6.1% in response. Here's what you need to know.

NVIDIA's Q2 results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Revenue

$1.43 billion

$1.15 billion

24%

Net income

$253 million

$26 million

873%

GAAP earnings per share (diluted)

$0.40

$0.05

700%

Data source: NVIDIA. YOY = year over year.

What happened with NVIDIA this quarter?

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NVIDIA launched new products on all four of its major platforms in the second quarter, from gaming and professional graphics to automotive and data center computing. This was done without breaking the bank with launch-inflated marketing budgets.

  • Automotive sales rose 68% year over year, driven by adoption of Tegra chips for in-car infotainment systems. Car makers are also signing contracts with NVIDIA for forward-looking research and development, pointing to more of this strong growth trend in coming quarters.
  • Data center sales more than doubled, powered by demand for NVIDIA's Tesla and GRID number-crunching solutions.
  • If the year-over-year comparisons above look radical, it's because the GAAP results for the year-ago period include $89 million of restructuring charges. Without that item, stock-based compensation costs, and a small bill for legal settlements, adjusted net income increased 65% to $313 million. On that basis, non-GAAP earnings rose 56% to land at $0.53 per diluted share. Sometimes, non-GAAP figures actually help investors to look past temporary distortions and make sense of the fundamental business. This is one of those times.

CFO Colette Kress offered the following guidance for the third quarter of 2017:

  • Revenue is expected to land near $1.68 billion, up from $1.28 billion in the third quarter of 2016.
  • Doing the math on Kress' detailed outlook for margins, tax rates, and operating costs puts GAAP net income near $348 million and adjusted earnings at roughly $402 million. Hitting these targets exactly would work out to GAAP earnings of $0.55 per diluted share and adjusted EPS would be $0.68.

What management had to say

NVIDIA CEO Jen-Hsun Huang highlighted his excitement of data center applications for the new Pascal processor platform.

Strong demand for our new Pascal-generation GPUs and surging interest in deep learning drove record results.We are more excited than ever about the impact of deep learning and AI, which will touch every industry and market. We have made significant investments over the past five years to evolve our entire GPU computing stack for deep learning. Now, we are well positioned to partner with researchers and developers all over the world to democratize this powerful technology and invent its future.

Looking ahead

NVIDIA investors have enjoyed a 160% gain over the last 52 weeks, including a 140% climb in the last six months alone. Customers are welcoming the company's first new processor platform in four years with open arms.

Meanwhile, archrival Advanced Micro Devices (NASDAQ: AMD) introduced its own long-awaited platform to similar cheers. That stock has more than tripled in the last six months. This storied rivalry looks alive and well, in spite of the supposed death of the PC and other macroeconomic headwinds.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.