Nvidia boosted by a new generation of gaming chips

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A new generation of gaming chips, along with strong demand for a wide range of digital services during the coronavirus pandemic, allowed Nvidia to exceed revenue and profit expectations in the last quarter.But shares of the U.S. chipmaker fell around 3% in an earnings call Wednesday night as investors sorted through a complex outlook that revealed the company was battling a number of headwinds even as it was raised by strong secular forces like the rise of AI. .

Factors affecting Nvidia’s outlook included a large network equipment order from a Chinese customer – believed to be Huawei – which was postponed until the last quarter. While this boosted the numbers, it also meant that sales for that part of the business would likely drop sequentially in the current quarter, the company said.

Managing director Jensen Huang said in an interview with the Financial Times that Nvidia would have exceeded expectations in the quarter even without this large order. He also said the company was under supply constraints for its new chips for gamers, although he claimed it was because demand had been “so overwhelming.”

The pandemic has affected parts of Nvidia’s business, hampering sales of chips to automakers and for some office applications. But the setback has been more than offset by a surge in video games this year, as well as increased use of cloud services in general.

Nvidia’s recent growth spurt has been fueled by huge demand from data center customers who use its graphics processing units to improve the performance of their machine learning systems. Data center sales topped games – Nvidia’s traditional business – for the first time earlier this year and capped a stock rally that made Nvidia the world’s most valuable chipmaker.

On Wednesday, however, the company revealed that demand for its Ampere chips in personal computers and game consoles represented its last quarter of outperformance. A 37% jump in gaming revenue from the previous three months – a larger rebound than the 25% expected by the company – brought games sales to $ 2.27 billion.

This topped $ 1.9 billion in data center sales, representing sequential growth of 8%. However, the data center market has consistently supported Nvidia’s strong year-over-year performance, with sales in this segment surging 162%, close to the growth rate seen in the previous quarter.

Overall, Nvidia’s revenue growth rate accelerated to 57 percent, 2 percentage points higher than the previous quarter and its strongest growth in two and a half years. The revenue of $ 4.73 billion exceeded analysts’ expectations of $ 4.41 billion.

Pro forma earnings per share, at $ 2.91, were up 63% from a year ago and 34 cents above expectations. Based on formal accounting principles – and taking into account acquisition costs and employee stock compensation – earnings per share increased 46%, to $ 2.12.

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