NVIDIA (NASDAQ: NVDA) continued to fire on all cylinders in the second quarter. Gaming revenue was up over 50% and datacenter revenue once again more than doubled. Here is what NVIDIA CEO Jensen Huang said during the second quarter conference call that spell out a few of the big trends impacting the company.
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Gaming segment continues to thrive
Selling graphics processing units (GPUs) to PC gamers is NVIDIA's largest business, making up 57.5% of trailing twelve month total revenue. For the second quarter, gaming revenue increased 52% year over year and marked the fourth straight quarter of at least $1 billion in revenue for the segment.
Recently, all eyes have been on Advanced Micro Devices' (NASDAQ: AMD) anticipated launch of its new Radeon RX Vega graphics cards, which is AMD's new high-end offering for PC gamers. With Vega cards now available for sale, the jury is in -- they're not good enough.
More than a year after NVIDIA launched its high-end GeForce GTX 1080 and 1070 cards, AMD's Vega cards match NVIDIA's high-end cards in performance overall, but with a lot more power required. Consequently, NVIDIA's CEO Jensen Huang seems very comfortable with the competitive position of NVIDIA's Pascal cards for the balance of the year:
GeForce is in an incredibly great strategic position. After all of the numerous product launches that we've seen from other players, it's very, very clear that the GeForce product lineup is absolutely the best in the world.
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As of the first quarter of 2017, Jon Peddie Research pegged NVIDIA's discrete graphics market share at 72.5% versus AMD's 27.5%. Also, Steam -- the widely used digital distributor for PC games -- recently ran its July 2017 user survey and showed NVIDIA GeForce cards to be by far the most popular choice for PC gamers.
With NVIDIA's new Volta cards expected sometime in the near future -- which will no doubt take another leap ahead in performance over what's available now -- it doesn't look like NVIDIA will lose its pole position any time soon as the GPU provider of choice for PC gamers.
Volta for datacenters is a big deal
NVIDIA's new Volta GPUs for datacenters are in full production right now, and should keep NVIDIA in the lead in the fast growing GPU-powered datacenter market. Trailing twelve month revenue for the Datacenter segment reached $1.36 billion, an increase of 187% year over year. NVIDIA has two tailwinds working in its favor in this market: First, the GPU is widely recognized as the way forward for data-intensive processing. Second, a GPU-powered datacenter has a very advantageous value proposition.
Whenever you include a Volta in your datacenter, in your server that is doing data-intensive processing, the number of commodity servers...and cables that it replaces is pretty extraordinary. Every single Volta allows you to save several hundred thousand dollars.
-- NVIDIA CEO Jensen Huang
In a recent investor presentation, NVIDIA pegged its datacenter market opportunity at about $30 billion, but CEO Jensen Huang admitted on the latest conference call that he really doesn't know exactly what the long term growth rate is going to be. In response to a question about the long-term growth trajectory, Huang said:
The number of data-intensive applications and industries that need them is really growing very fast. And so...what does that imply in terms of long-term growth? It's kind of hard to say.
He went on to provide more color to help investors understand that the datacenter opportunity is huge, nonetheless:
There's every evidence that every single datacenter and every single [original equipment manufacturer] and every single Internet service provider is jumping on...Volta. And I believe that [artificial intelligence] is going to be the future of computing.
While NVIDIA's datacenter segment won't grow at more than 100% forever, the current trajectory of growth and the number of sectors of the economy it benefits -- healthcare, retail, manufacturing, etc. -- suggests a market several times the segment's current $1.3 billion in revenue, and perhaps much bigger than NVIDIA's total trailing twelve month revenue of $8.3 billion.
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