NVIDIA Delivers Stunning AI Growth on a Solid Gaming Foundation

By Danny Vena Markets Fool.com

Investors may have been concerned that graphics processing industry leader NVIDIA Corporation (NASDAQ: NVDA) would be unable to continue the breakneck pace of its growth, but those fears were put to rest when the company reported its financial results earlier this week.

Continue Reading Below

NVIDIA produced a monstrous $1.937 billion in revenue, representing 48% year-over-year revenue growth in its most recent quarter -- which is typically its slowest of the year.

This was the result of a solid $1.027 billion in its gaming segment, a 49% increase over the prior-year quarter. Gaming accounts for half of the company's sales, so investors were watching this segment closely.

GAAP net income for the quarter grew 144% over the prior-year quarter to $507 million. This indicates that NVIDIA continued to control expenses while growing revenue, which dropped more to the bottom line. Earnings per share grew 126% year over year to $0.79, up from $0.35 in the prior-year quarter.

NVIDIA GeForce GTX 1080 TI Graphics Processor. Image source: NVIDIA.

AI driving this train

Continue Reading Below

The shocker was the near tripling of revenue in NVIDIA's Datacenter segment to a record $409 million, up 186% year over year and marking the seventh consecutive quarter of sequential gains. This is a result of the company's continuing push in the field of artificial intelligence (AI). This segment, which accounted for 6% of NVIDIA's sales just two years ago, now represents more than 21% of total revenue and shows no signs of slowing.

The thing that makes NVIDIA GPUs so skilled at rendering graphics, the ability to handle vast amounts of basic mathematical calculations simultaneously, also makes them the perfect tool for training AI systems. As adoption of AI has skyrocketed, so have NVIDIA's fortunes, which resulted in the outperformance in the company's datacenter segment.

Segment

Q1 2018

Q1 2017

Change (YOY)

Gaming

$1,027

$687

49%

Professional visualization

$205

$189

8%

Datacenter

$409

$143

186%

Auto

$140

$113

24%

OEM & IP

$156

$173

-10%

Total

$1,937

$1,305

48%

Data source: NVIDIA 10-K. Chart by Author. All figures in millions. YOY = Year-over-year.

Explaining the exceptional results, CEO Jensen Huang stated:

The AI revolution is moving fast and continuing to accelerate. NVIDIA's GPU deep learning platform is the instrument of choice for researchers, internet giants and start-ups as they invent the future.

Our Datacenter GPU computing business nearly tripled from last year, as more of the world's computer scientists engage deep learning. One industry after another is awakening to the power of GPU deep learning and AI, the most important technology force of our time.

Automotive segment

NVIDIA also saw record revenue from its automotive segment, which grew 24% year over year to $140 million. Over the past year, NVIDIA's DRIVE PX 2 AI platform has been adopted by more than 225 car and truck makers, suppliers, research organizations, and start-ups, up 50% in the past quarter alone.

The company expects this platform to be capable of level 3 autonomous driving by the end of the year, in which driving is shared between the self-driving system and the driver. Level 4 autonomy, which involves the vehicle handling the majority of driving tasks, is expected by the end of 2018.

Going forward

NVIDIA expects revenue of about $1.95 billion for the current quarter, which would represent a year-over-year increase of nearly 37%.

NVIDIA has leveraged its humble graphics processor into leadership in the emerging fields of AI and autonomous driving. This opportunity was years in the making, and the company is forging ahead, developing new technology and teaming with a variety of industries to capitalize on its AI acumen. It looks like there is more to come from NVIDIA.

10 stocks we like better than Nvidia
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now...and Nvidia wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of May 1, 2017.

Danny Vena has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool has a disclosure policy.