3 Key Things NVIDIA's CEO Wants Investors to Know

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NVIDIA (NASDAQ: NVDA) reported superb fiscal second-quarter 2018 results last Thursday, Aug. 10. The graphics-chip specialist's revenue jumped 56%, earnings per share soared 124%, and adjusted earnings per share (EPS) surged 91%. Revenue comfortably beat Wall Street's consensus estimate, while earnings crushed expectations.

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There was a wealth of information covered on the analyst conference call following the earnings release. Below are three key things that you should know.

For reference, here's how NVIDIA's market platforms performed in the quarter:

Platform

 Q2 Revenue (in Millions)

Change (YOY)

Change (QOQ)

Gaming

 $1,186

52% 

15%

Data center

 $416

175%

 2%

Professional visualization

 $235

10% 

 15%

Auto

 $142

19% 

 1%

OEM and IP 

 $251

54%

 61%

Total

 $2,230

56%

 15%

1. Management expects new Volta-based Tesla V100 to be "very, very successful" in data centers

From CEO Jensen Huang's remarks:

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We shipped a lot of Voltas. And Volta is fully ramped. Customers are clamoring for it. The leap generationally for deep learning is quite extraordinary. And so we're expecting Volta to be very, very successful.

Based on Huang's comments, we should be able to expect the data-center platform to post solid sequential-revenue growth in the third quarter. In the second quarter, data-center revenue soared 175% from the year-ago quarter, but revenue only increased 2% from the first quarter. This modest sequential growth was likely the primary reason the market sent shares of NVIDIA to a closing loss of 5.3% on Friday before reversing course on Monday and sending shares up 8.1%. 

NVIDIA's data-center business has been growing like gangbusters on a year-over-year basis and also had been growing nicely sequentially prior to the second quarter. The company expects this platform to be a significant growth driver going forward, thanks largely to the rapid adoption of its graphics-processing unit-based deep-learning approach to artificial intelligence (AI). So if there were no good reasons behind the modest 2% sequential growth, that could be quite concerning.

However, there was a very good reason: The company only began later in the fiscal quarter to ship its Tesla V100 accelerator, its first product based on its new Volta GPU architecture, but had announced it nearer the beginning of the quarter. So it makes sense that some customers put off purchases of less powerful existing products based on the company's Pascal GPU architecture. 

2. Cryptocurrency will continue to grow and be an important market 

From Huang's remarks:

Cryptocurrency ... is here to stay. The market need for it is going to grow, and over time, it will become quite large. [I]t is very clear that new currencies will come to market. And it's very clear that the GPU is just fantastic at ["mining"] cryptography, and as these new algorithms are being developed, the GPU is really quite ideal for it.

NVIDIA's OEM category got a nice boost in the quarter from the recent rise in cryptocurrency coin prices, which resulted in higher demand for the company's application-specific GPUs for cryptocurrency mining. (Cryptocurrency is a digital currency that uses cryptography for security and operates independently of a centralized bank. Bitcoin and Ethereum are two of the better-known cyptocurrencies.) The gaming platform also benefited, as some folks bought GeForce GTX boards for mining. 

Management anticipates that the cyptocurrency market will continue to grow. Huang said the company's strategy is to "stay very, very close to the market," as it's very dynamic. Without mentioning Advanced Micro Devices, he made a comment suggesting he believes NVIDIA is better positioned than its smaller GPU rival with respect to this market: "[T]he larger of a GPU company you are, the greater ability you [have to] absorb the volatility [in demand]."

3. The gaming market should be very vibrant for the second half of the year

From Huang's remarks:

And the second half is going to see some very exciting [gaming] titles. You've got Destiny 2, [and] you have Call of Duty from Activision, you have Star Wars Battlefront from EA [Electronic Arts]. I mean, these are going to be blockbusters, and we're expecting them to do incredibly well. We also know that a game that came out of nowhere [PlayerUnknowns Battlegrounds, is doing] incredibly well.

Based on Huang's comments, investors can probably expect continued solid growth from NVIDIA's gaming platform, which accounted for 53% of its total revenue in the second quarter. NVIDIA traditionally has had the stronger market position in the higher-end gaming market, though AMD is aiming to gain share with its recently released Vega card. 

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Beth McKenna owns shares of Nvidia. The Motley Fool owns shares of and recommends Activision Blizzard and Nvidia. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.