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How Nvidia Makes Money

Nvidia's graphics, compute, and networking fuel revenue growth

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, cryptocurrency mining, and professional applications, as well as chip systems for use in vehicles, robotics, and other tools. Some of 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.
  • The graphics segment is Nvidia's largest revenue generator.
  • The company's compute and networking segment is growing fast.
  • Nvidia announced in early February that it was terminating its agreement to purchase U.K.-based semiconductor design firm Arm due to significant regulatory challenges.

Nvidia's Financials

Nvidia announced in mid-November 2021 financial results for Q3 of its 2022 fiscal year (FY), the three-month period ended Oct. 31, 2021. The company reported a net income of $2.5 billion, up 84.4% compared to the year-ago quarter. Revenue rose 50.3% year over year (YOY) to a record $7.1 billion. Nvidia's operating income, which it uses as a profitability metric for its individual business segments, grew 91.1% YOY to $2.7 billion.

The chip company serves five primary markets—gaming, data center, professional visualization, automotive, original equipment manufacturer (OEM) and other—and provides a revenue breakdown for each of those markets: Gaming revenue, comprising 45% of total revenue, rose 41.8% YOY in the third quarter; data center revenue (41% of total) grew 54.5% YOY; professional visualization revenue (8%) was up 144.5% YOY; automotive revenue (2%) increased 8% YOY; and OEM and other revenue (3%) expanded 20.6% YOY.

The COVID-19 pandemic has had a positive impact on Nvidia's financial performance. The company said that its gaming, data center, and professional visualization market platforms have been boosted by stronger demand from people working, studying, or playing from home during the pandemic. Company Chief Executive Officer (CEO) Jensen Huang said that demand for its AI solutions was surging as more companies adopt the technology and increase their use of hyperscale and cloud computing.

Nvidia's Business Segments

Nvidia reorganized how it reports its operating segments beginning in Q1 FY 2021. The company's two main reportable segments are now graphics and compute and networking. Nvidia also includes an all other category for expenses not included in the other two segments. Breakdowns for revenue and operating income are included for these segments. Note that the consolidated operating income used to calculate the data in the pie chart above and below excludes the operating loss reported for the all other category in Q3 FY 2022. Previously, the company provided a breakdown of the revenue for a GPU segment and a Tegra processor segment.

Graphics

Nvidia's graphics segment includes the GeForce GPUs for gaming and PCs, the GeForce NOW game-streaming service and related infrastructure, and solutions for gaming platforms. It also includes the Quadro/NVIDIA RTX GPUs for enterprise design, GRID software for cloud-based visual and virtual computing, and automotive platforms for infotainment systems.

In Q3 FY 2022, the graphics segment generated $4.1 billion, or about 58%, of Nvidia's total revenue. This was up 46.8% compared to the year-ago quarter. The segment's operating income grew 60.6% YOY to $2.2 billion, comprising about 62% of the total.

Compute and networking

The compute and networking segment includes Nvidia's Data Center platforms as well as systems for AI, high-performance computing, and accelerated computing. It also includes networking and interconnected solutions, automotive AI Cockpit, autonomous driving development agreements, autonomous vehicle solutions, cryptocurrency mining processors, and Jetson for robotics and other embedded platforms.

The compute and networking segment delivered revenue of $3.0 billion in Q3 FY 2022, up 55.3% from the year-ago quarter. The segment accounts for about 42% of Nvidia's total revenue. Operating income grew 80.5% YOY to $1.3 billion. Compute and networking accounts for about 38% of the company's total operating income.

All other

As mentioned above, the all other category includes expenses not included in the other two segments. Such expenses include stock-based compensation, corporate infrastructure and support costs, acquisition-related costs, IP-related costs, and other non-recurring charges and benefits deemed to be enterprise in nature. These expenses amounted to an operating loss of $821 million for the category in Q3 FY 2022, 19.9% larger than the operating loss reported in the year-ago quarter. The all other category did not generate any revenue during the quarter.

Nvidia's Recent Developments

On Feb. 7, 2022, Nvidia announced the termination of its agreement to purchase U.K.-based semiconductor design firm Arm Inc. from SoftBank Group Corp. Nvidia first announced an agreement to acquire Arm for $40 billion in September 2020. The company cited significant regulatory challenges as the reason for terminating the agreement. The transaction was facing antitrust scrutiny from the U.S. Federal Trade Commission (FTC) and the U.K.'s Competition and Markets Authority (CMA), as well as regulators in Europe and China.

On Jan. 24, 2022, Nvidia announced that Meta Platforms, formerly Facebook, was choosing Nvidia's technology to build its AI Research SuperCluster (RSC). This AI supercomputer is expected to be the largest customer installation of Nvidia's NVIDIA DGX A100 systems. Nvidia's DGX A100 system provides comprehensive AI solutions for analytics, training, and inference applications.

How Nvidia Reports Diversity and Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Nvidia and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Nvidia releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Nvidia discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Nvidia breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.

Nvidia Diversity and Inclusiveness Reporting
  Race Gender Ability Veteran Status Sexual Orientation
Board of Directors          
C-Suite          
General Management ✔ (U.S. Only)      
Employees ✔ (U.S. Only)      

Article Sources

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  1. Nvidia Corp. "Form 10-K for the fiscal year ended January 31, 2021," Page 4. Accessed March 5, 2021.

  2. Nvidia Corp. "NVIDIA Announces Financial Results for Third Quarter Fiscal 2022." Accessed Feb. 10, 2022.

  3. Nvidia Corp. "Form 10-Q for the quarterly period ended October 31, 2021," Page 26. Accessed Feb. 10, 2022.

  4. Nvidia Corp. "Form 10-Q for the quarterly period ended October 31, 2021," Page 23. Accessed Feb. 10, 2022.

  5. Nvidia Corp. "Form 10-K for the fiscal year ended January 31, 2021," Page 75. Accessed March 5, 2021.

  6. Nvidia Corp. "Form 10-K for the fiscal year ended January 31, 2021," Page 29. Accessed March 5, 2021.

  7. Nvidia Corp. "Form 10-Q for the quarterly period ended October 31, 2021," Page 21. Accessed Feb. 10, 2022.

  8. Nvidia Corp. "Form 10-Q for the quarterly period ended October 31, 2021," Page 22. Accessed Feb. 10, 2022.

  9. Nvidia Corp. "NVIDIA to Acquire Arm for $40 Billion, Creating World’s Premier Computing Company for the Age of AI." Accessed Feb. 10, 2022.

  10. Nvidia Corp. "NVIDIA and SoftBank Group Announce Termination of NVIDIA’s Acquisition of Arm Limited." Accessed Feb. 10, 2022.

  11. GOV.UK. "NVIDIA / Arm merger inquiry." Accessed Feb. 10, 2022.

  12. The Wall Street Journal. "Nvidia’s Deal Setback Eased by Soaring Chip Demand." Accessed Feb. 10, 2022.

  13. Nvidia Corp. "Meta Works with NVIDIA to Build Massive AI Research Supercomputer." Accessed Feb. 10, 2022.

  14. Nvidia Corp. "NVIDIA DGX A100." Accessed Feb. 10, 2022.

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