NVIDIA Corporation's Biggest Business Surged 63% Last Quarter

By Markets Fool.com

Last quarter, graphics processing unit (GPU) specialist NVIDIA (NASDAQ: NVDA) delivered what could only be described as a "blowout" quarter. Overall revenue surged 54%, largely driven by eye-popping growth across three of its four major growth businesses (gaming, automotive, and data centers).

Continue Reading Below

Image source: NVIDIA.

Perhaps the most impressive thing about the report was that NVIDIA's gaming business -- the company's largest one by far -- grew from $761 million to $1.244 billion in the most recent quarter.

Let's take a closer look at what NVIDIA management had to say about this performance on its most recent quarterly earnings call.

Lots of demand

NVIDIA CFO Colette Kress said this demand was "fueled by [NVIDIA's] Pascal-based GPUs." These GPUs are sold either as part of add-in-boards for desktop computers or integrated into notebook computers designed specifically for gaming applications.

Continue Reading Below

NVIDIA first introduced Pascal-based gaming graphics processors back in May, replacing chips based on its prior-generation graphics architecture known as Maxwell.

"Demand was strong in every geographic region across desktop and notebook [personal computers], and across the full gaming audience, from GTX 1050 to Titan X," Kress continued.

For reference, the GeForce GTX 1050 is NVIDIA's entry-level gaming-oriented graphics processor that begins at $109, while the Titan X is NVIDIA's highest-end gaming product, priced at $1,200.

Kress also said sales of graphics processors aimed at notebook computers "recorded significant gains." This was likely driven in no small part by the fact that NVIDIA's latest gaming notebook chips are nearly identical to their desktop counterparts. In the past, NVIDIA's gaming notebook graphics processors offered noticeably less performance than the desktop versions.

Still ramping Pascal architecture products

On the call, analyst Stephen Chin asked CEO Jen-Hsun Huang if he "had any thoughts on whether or not there's still a big gap between the ramp-up of Pascal supply and the pent-up demand for those new products."

"In terms of Pascal, we are still ramping," Huang began. "Production is fully ramped in the sense that all of our products are fully qualified, they're on the market, they have been certified and qualified with [original equipment manufacturers]."

He went on to add that "demand is fairly high" and that NVIDIA will "continue to work hard," presumably to meet that demand.

Additionally, Huang praised NVIDIA's main manufacturing partner for the Pascal-based gaming processors, Taiwan Semiconductor Manufacturing Company (NYSE: TSM), saying that manufacturing yields are "fantastic" and that the Taiwan-based chip manufacturer is "doing a fantastic job supporting [NVIDIA]."

It's worth noting that although TSMC builds most of NVIDIA's Pascal-based products (GTX 1060, GTX 1070, GTX 1080, GTX Titan X, and Tegra), Samsung (NASDAQOTH: SSNLF) was confirmed to be building the GP107 chip that powers the entry-level GeForce GTX 1050 and GeForce GTX 1050 Ti products.

One more thing

Although the bulk of NVIDIA's gaming revenues come from sales of stand-alone graphics processors for gaming-oriented personal computers, NVIDIA is now back in the game console chip business with the Nintendo (NASDAQOTH: NTDOY) Switch.

Interestingly, Huang said "Nintendo contributed a fair amount" to the growth NVIDIA's gaming business saw last quarter.

That said, NVIDIA's overall Tegra processor business brought in $241 million last quarter (and much of that is likely from sales into automotive applications, a segment that grew 61% for the graphics specialist last quarter). So, it's fair to say that most of the year-over-year gaming growth that NVIDIA enjoyed last quarter was due to gaming-oriented graphics processors.

Investment takeaway

Given the size and maturity of NVIDIA's gaming business, seeing 60%-plus year-over-year growth rates is incredibly impressive. Per Huang, the revenue growth in this segment has been driven by both unit growth as well as average selling price growth.

I don't think NVIDIA will be able to sustain such incredible growth rates in this business going forward, but if this business can grow at a 15%-20% annual pace over the next several years, that would not only be impressive, but it could drive significant profit expansion for the graphics specialist.

Forget the 2016 election and find out why Nvidia is one of the 10 best stocks to buy now
Donald Trump is the new president, and youre naturally wondering how best to protect your portfolio and profit in the process. Well, Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. (In fact, the newsletter they run, Motley Fool Stock Advisor, has nearly tripled the market!*)

With their record of winning in up and down markets, David and Tom know how to invest profitably no matter who occupies the White House.

Tom and David just revealed their ten top stock picks for investors to buy right now. Nvidia is on the list, but there are nine others you may be overlooking.

Click here to get access to the full list!

*Stock Advisor returns as of November 7, 2016.

Ashraf Eassa 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.