NVIDIA's Explosive Growth in 5 Charts

NVIDIA Corporation (NASDAQ: NVDA),the industry leader in graphics processing, recently delivered record financial results that wowed investors, who proceeded to bid up the company's stock by 16% on the day following the earnings release. Investors had doubts after a couple successive quarters of such growth, but NVIDIA put those fears to rest by delivering some truly sensational numbers.

The company continued its swift progress in some key areas. Let's look at several charts that illustrate the company's results to see if this trend can continue.

NVIDIA DGX-1 Deep Learning System helps drive data center growth. Image source: NVIDIA.


Revenue growth is the catalyst of any strong performance, and this one was no different. NVIDIA reported quarterly revenue that grew 48% to $1.937 billion from $1.428 billion in the year-ago quarter. Gaming revenue increased 49%year over yearto $1.027 billion, up from $687 million, as gamers continued to migrate to NVIDIA's high-performance Pascal GPU.

The star of the show was data center revenue, which grew to $409 million, up from $143 million in the prior-year quarter, an increase of 186%. This was driven by increasing demand for training artificial intelligence (AI) systems, which is seeing uptake in a variety of industries including healthcare, finance, cloud computing, and retail. This was previously only a small contributor to NVIDIA's total revenue but has recently grown to over 20% of total sales.

Data source: NVIDIA SEC filings. Chart by author.

Margin expansion

NVIDIA continues to produce impressive gross margin expansion on the back of its push into value-added platforms. The most recent quarter delivered near-record gross margin levels approaching 60%. The process of stacking GPUs and optimizing for segments or industries continued to produce compelling results.

Once the work has been done for a specific purpose, NVIDIA seeks out other buyers that will benefit from the work it has already done. This is apparent in the field of AI, where the company has built a plug-and-play AI supercomputer, complete with stacked GPU's and the algorithms necessary to train deep learning systems. AI continues to expand into new industries while positively impacting NVIDIA's gross margins.

NVIDIA produces near-record gross margins. Image source: NVIDIA.

Research and development

These wins in emerging industries don't just materialize from thin air, but are the result of investing in research and development. Five years ago, it would be very rare to hear about a company investing in artificial intelligence, though now it has become the norm. NVIDIA has been investing hard-earned R&D dollars into the area for over five years and has continued to ramp up those investments in absolute terms.

Those investments are beginning to bear fruit, as evidenced by the massive increases in data center revenue, and while the dollar value of R&D has skyrocketed in recent years, it has been falling as a percentage of revenue.

NVDA R&D data by YCharts.

Free cash flow and capital return

NVIDIA has done a spectacular job at controlling its expenses and turning additional revenue into greater levels of net income and free cash flow. Free cash flow is the amount that remains after investments in fixed assets and the payment of operating expenses. This remaining cash can be used to return capital to shareholders.

In its earnings press release, NVIDIA announced that it had paid $82 million in dividends in the first quarter and that it intended to return $1.25 billion to shareholders throughout the course of the year via dividends and share repurchases.

The company has returned $4.1 billion to shareholders since the resumption of its capital return program in fiscal 2013, which represents 85% of the free cash flow for the period.

NVIDIA plans capital returns of $1.25 billion through dividends and share buybacks. Image source: NVIDIA.

Investor takeaway

NVIDIA believes that there are multiple drivers that can each produce billions of dollars in growth. Gaming continues to expand and e-sports represents a growing trend. Artificial intelligence remains in its infancy and is transforming industry after industry. Transportation represents a $10 trillion opportunity for the company, which is at the forefront with its autonomous driving technology.

NVIDIA sees multiple billion-dollar growth drivers. Image source: NVIDIA.

NVIDIA is at the center of a perfect storm of opportunities in gaming, AI, and self-driving platforms. These developments have been years in the making, and the company is continuing to carve out its place in the mix.

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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.