NVIDIA Corporation: Earnings Highlights May 14, 2018 930

Description

NVIDIA Corporation (NASDAQ:NVDA) is a technology company. The Company focuses on Personal Computing (PC) graphics, graphics processing unit (GPU) and also on Artificial Intelligence (AI). The Company operates in four business segments:

  1. Gaming: Development, manufacturing and sale of GPUs for the purpose of video gaming through PCs, mobile, cloud-based as well as Virtual Reality (VR).
  2. Professional Visualization: Visual computing includes Design and Manufacturing for computer aided design, architectural design, consumer product manufacturing, medical instrumentation and aerospace, and Digital Content Creation for video editing and special effects for films and television graphics.
  3. Datacenter: accelerated computing platform to address AI. Provides a family of GPUs to speed up training and inferencing of neural networks. Also serves datacentre market with GRID for virtualised graphics.
  4. Automotive: works with automotive partners to enable AI pilot and co-pilot within the car. Its offerings help to process visual-based data and location on a High Definition (HD) map to plan its path forward.

Largest profit contributors are Gaming (53.75%) and Datacenter (22.19%).

Source: Thomson Reuters

Results Highlights

NVDA reported better than expected results for 1Q19

  • EPS of USD2.05 (up 138% YoY) beating consensus estimates of USD1.66
  • Revenue of USD3.21bn (up 65.5% YoY) beating consensus estimates of USD2.91bn
  • Core Gaming segment grew 68%, Datacenter grew 71%.
  • Announcement of new projects in medical imaging, robotics and AI

Investment Rationale

NVDA continues to fire on all cylinders, growing their core segment of gaming by almost 66% YoY while also growing their new segments by double digits like Datacenter by 71%. NVDA’s chip offerings continue to be in the perfect storm of technological advancement, being applicable in high growth sectors like AI, Cloud computing and Automotive vehicles. The company’s shares fell in the trading session after reporting their latest quarter. This despite impressive growth numbers, potentially due to them guiding that revenue from cryptocurrency mining is likely to fall 65% in the next quarter. However, revenue from cryptocurrency mining accounts for less than 10% of revenue and given NVDA’s growth in other segments, we do not believe that waning revenue from cryptocurrency will have material impact on their business. As such, we are positive in the long run for NVDA but feel there may be short term volatility as the stock has run hot for quite a while.

Results Summary

1. Gaming revenue was up 68% YoY: NVDA saw revenue from gaming GPU sale grow 68% YoY to USD1.72bn, citing continued strong demand from the gaming market as new popular games, such as Fortnite and Final Fantasy XV, attracted a new wave of gamers to their GeForce platform. The company sees the trend towards more graphically intensive, higher production value games which would require higher end GPUs to render. NVDA also announced their real time ray tracing technology, NVIDIA RTX, which can offer movie like graphics in real time. They also revealed that supply was tight earlier in the quarter, due to cryptocurrency mining demand taking supply away from their core demographic, gamers. However, they cited that they were eventually able to fulfil most of the demand with crypto-specific GPUs, which defended a vast majority of the supply for gamers. Despite that, the company believes that there is still pent up demand from gamers for more GPUs due to the explosion of popularity from Fortnite and Player Unknown’s Battleground (PUBG). They also cited that they expected crypto specific revenue to be down by 2/3 in the next quarter. NVDA reported that crypto-specific revenue came in at USD289mn, but guided that they expected it to fall to about USD100mn. Seeing as the growth in its core segment is so high, we believe that the fall in crypto related revenue to be immaterial.

2. Datacenter revenue increased 71% YoY: Datacenter grew revenue by 71% to USD701mn. NVDA announced advancements to AI deep learning and AI inference. Demand was strong as NVDA announced that in the public cloud segment, Microsoft Azure joined Amazon, IBM, Oracle and Google Cloud in using its Tesla V100. The company also revealed their TensorRT 4, which accelerates AI deep learning inference up to 190 times faster than CPUs for applications like computer vision, speech recognition speech synthesis and recommendation systems. NVDA mentioned that with the TensorRT 4, their market reach has expanded to 30 million hyperscale servers worldwide. The Company also mentioned that they now view the total addressable market for datacenter applications to reach USD50bn by 2023 and that the total number of developers adopting their accelerated computing platform has grown 72% YoY to 850,000.

 

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About the author

Profile photo of Ho Kang Wei

Ho Kang Wei
Investment Analyst
Phillip Securities Research Pte Ltd

Ho Kang Wei graduated with a Bachelor of Commerce, majoring in Accounting and Finance, from Monash University.

He started analysing and investing in US equity markets since 2008. Joining Phillip Securities Research in 2015, he is the analyst in charge of US markets.

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