Nvidia Earnings: What Happened

NVDA data center revenue beat expectations

Key Takeaways

  • Adjusted EPS was $2.91 vs. the $2.57 analysts expected.
  • Revenue exceeded analyst expectations.
  • Data center revenue was higher than the level analysts estimated.
  • Nvidia's proposed acquisition of Arm Ltd. is expected to close in first quarter of calendar year 2022.

What Happened

Nvidia reported earnings for Q3 FY 2021 that beat analysts' expectations by a significant margin. Revenue, and specifically data center revenue, also surpassed analyst forecasts and beat previous records for the third quarter. Revenue growth accelerated, primarily driven by a 162% YOY increase in data center revenue.

"NVIDIA is firing on all cylinders, achieving record revenues in Gaming, Data Center and overall," said founder and CEO Jensen Huang. The company also indicated that its proposed acquisition of U.K.-based Arm Ltd. is expected to close during the first quarter of calendar year 2022. In collaboration with Arm, Nvidia plans to build an AI lab and supercomputer in Cambridge, England.

(Below is Investopedia's original earnings preview, published November 16, 2020.)

What to Look For

Nvidia Corp. (NVDA) is posting record sales amid the COVID-19 pandemic and its adverse effects on the global economy. The coronavirus and the related measures intended to slow its spread have triggered a surge in demand for video gaming and rapid growth of the work-from-home economy. This has helped to boost the chipmaker's gaming and data center businesses.

Investors will be watching to see if Nvidia can continue its strong financial performance when it reports earnings on November 18, 2020 for Q3 FY 2021. The company's third fiscal quarter ended October 25, and its fiscal year (FY) is one year ahead of the current calendar year. Analysts expect robust year-over-year (YOY) growth for both adjusted earnings per share (EPS) and revenue.

Investors will be especially focused on Nvidia's data center revenue, a key metric showing sales being generated by a rapidly-growing segment of the company's business. Nvidia makes chips used by data centers. Demand for data center services has increased amid the pandemic, causing a related rise in demand for Nvidia's chips. Analysts expect another dramatic increase in data center revenue.

Nvidia's recent success is reflected in its stock price, which has soared this year and dramatically outperformed the broader market. The company's market capitalization even surpassed that of rival Intel Corp. (INTC), making it the most valuable semiconductor company in the U.S. Nvidia's shares have provided a total return of 155.6% over the past 12 months, well above the S&P 500's total return of 15.9%.

One Year Total Return for S&P 500 and Nvidia
Source: TradingView.

Nvidia has posted strong financial results in recent quarters after four consecutive quarters of declining earnings and revenue between Q4 FY 2019 and Q3 FY 2020. In the final quarter of FY 2020, adjusted EPS soared 135.5% YOY, marking the fastest growth since Q1 FY 2019. Growth has since decelerated to 104.5% in Q1 FY 2021 and 76.4% in Q2 FY 2021, but those are still envious growth rates, especially during a pandemic.

Revenue is also growing at a robust pace again. Following four consecutive quarters of YOY declines, revenue rose 40.8% in Q4 FY 2020. Growth then decelerated to 38.7% in the first quarter of the current FY 2021, but accelerated to 49.9% in Q2. It was the fastest pace of revenue growth since Q1 FY 2019.

Analysts expect the strong growth to continue. Adjusted EPS is forecast to rise 43.9% in Q3 FY 2021 while revenue is expected to grow at a pace of 46.7%. For full-year FY 2021, adjusted EPS is expected to rise 57.0% as revenue rises 44.7%. It would be the fastest pace of revenue growth in at least seven years.

  Estimate for Q3 2021 (FY) Q3 2020 (FY) Q3 2019 (FY)
Adjusted Earnings Per Share ($) 2.57 1.78 1.84
Revenue ($B) 4.4 3.0 3.2
Data Center Revenue ($B) 1.8 0.7 0.8

Source: Visible Alpha

Investors will also focus on another key metric, Nvidia's data center revenue. Nvidia has traditionally specialized in making chips for the gaming and graphics industry, being a pioneer in the development of graphics processing units (GPUs). It turns out that the robust computational capabilities employed by GPUs to power video games and graphics software are also well-suited for technologies like artificial intelligence (AI) and machine-learning. Both of those technologies are increasingly important for the rapidly growing data center market. Nvidia is already benefitting from that growth by building GPUs specifically designed for data center uses.

The company's data center revenue soared 167.5% YOY in Q2 FY 2021. It was the fastest pace of growth since Q2 FY 2018 and a significant acceleration from the 80.0% rise posted in the previous quarter. Analysts expect data center revenue to rise 152.0% in Q3 FY 2021. Nvidia is building on that success. In April of 2020, Nvidia strengthened its offerings in the data center field by completing its purchase of Mellanox Technologies Ltd. for $7 billion. Nvidia also recently announced plans to acquire U.K.-based semiconductor and software design firm Arm Ltd. from SoftBank Group Corp. (9984:TSE) and the SoftBank Vision Fund. Nvidia says that the acquisition would enhance its capabilities in AI and machine learning, which would in turn help boost its data center business. The deal, valued at $40 billion, still has to be approved by regulators and is likely to face particular scrutiny from antitrust authorities. 

Article Sources
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  1. The Wall Street Journal. "Nvidia Posts Record Sales as Pandemic Sustains Demand for Gaming, Data-Center Chips."

  2. Nvidia Corp. "NVIDIA Sets Conference Call for Third-Quarter Financial Results."

  3. Visible Alpha. "Financial Data."

  4. The Wall Street Journal. "A Coronavirus Surge in Screen Time Boosts Chip Makers."

  5. The Wall Street Journal. "Cloud Demand Drives Data Center Market to New Records."

  6. The Verge. "Nvidia’s first Ampere GPU is designed for data centers and AI, not your PC."

  7. NVIDIA. "NVIDIA Completes Acquisition of Mellanox, Creating Major Force Driving Next-Gen Data Centers."

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

  9. The New York Times. "Nvidia Buys Arm From SoftBank for $40 Billion." Accessed Nov. 15, 2020.

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