Nvidia Corp. (NVDA) popularized the graphics processing unit (GPU) and gets the vast majority of its revenue from these specialized chips. It's rapidly expanding into fields such as artificial intelligence (AI). Nvidia designs and sells GPUs for gaming and professional applications, as well as chip systems for use in vehicles, mobile devices, and other tools.  The company's biggest competitors include Intel Corp. (INTC) and Advanced Micro Devices, Inc. (AMD).

Key Takeaways

  • Nvidia popularized the use of graphics processing units, known as GPUs, a key component of PC architecture.
  • GPUs are Nvidia's major revenue generator.
  • The company is rapidly expanding into automotive, AI, and cloud gaming. Its latest GeForce NOW chip, under development, could accelerate growth in gaming.
  • Due to the coronavirus pandemic, Nvidia reduced its revenue outlook for the current quarter by $100 million.

Nvidia's Financials

Nvidia's surging growth in recent years was interrupted in its 2020 fiscal year ending January 26 of this year. Net income plunged 32% to $2.8 billion as revenue fell 7% to $10.9 billion, due to negative trends in the global chip market. Despite these declines, net income in FY 2020 was four times bigger and revenue was double the levels of FY 2016. That's because Nvidia saw consistent, rapid gains in revenue and profit from FY 2016 to FY 2019. 

Nvidia focuses four key market platforms, which reported mixed results in FY 2020. Gaming, the biggest platform by far, posted a 12% decline in revenue. The three other platforms posted gains, which are Data Center, Professional Visualization, and Automotive. The gains in these three areas could not offset the decline in gaming, which accounts for about half of revenue.

Nvidia's Business Segments

Nvidia divides its revenue into two major segments, GPU and Tegra Processor, which are each based on a single underlying architecture. Nvidia does not provide net income by segment.

GPU

As mentioned, Nvidia popularized the term "GPU," even though many experts argue that graphics processing units were invented years before Nvidia introduced its own product. The GPU segment includes products for specialized gaming and professional markets. Flagship brands and products within this segment include GeForce and GeForce NOW, gaming and cloud-based streaming services for gamers, Quadro for design professionals working in video editing, special effects, and related fields.

In FY 2020, GPU generated $9.5 billion, or about 86%, of Nvidia's revenue. This was down 7.0% YOY as a result of a decline in GeForce product sales. However, GPU as a percentage of total revenue was essentially unchanged from FY 2019 to FY 2020.

Tegra Processor

The Tegra Processor segment focuses on products that integrate a full computer onto a single chip, primarily for use in vehicles, drones, and autonomous robots. Some of the flagship brands in this segment include DRIVE AGX, a set of supercomputers for cars, and SHIELD, a set of devices and services utilizing cloud technology to enhance home entertainment and gaming.

Tegra Processor delivered revenue of $1.5 billion in FY 2020, down about 5.7% as compared with the prior year. Tegra represents about 14% of Nvidia's revenue. As with the GPU segment, although Tegra Processor revenue dropped somewhat in FY 2020, the segment's percentage of total revenue did not changed significantly. 

Nvidia's Recent Developments

Despite Nvidia's slowdown during FY 2020, Nvidia staged a dramatic recovery at the end of the year. In Q4, net income jumped 68% on a 41% gain in revenue. Due to the coronavirus pandemic, Nvidia reduced its revenue outlook for the current quarter by $100 million.