EQUITY RESEARCH 19.08.2021

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Nvidia Corporation – NVDA

Nvidia Corporation is an artificial intelligence computing company. It operates through two segments: Graphics and Compute & Networking. Its Graphics segment includes GeForce graphics processing unit (GPU), the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro/NVIDIA RTX GPUs for enterprise workstation graphics; virtual graphics processing unit (vGPU) software for cloud-based visual and virtual computing; and automotive platforms for infotainment systems. Its Compute & Networking segment includes Data Center platforms and systems for artificial intelligence (AI), high-performance computing (HPC), and accelerated computing; Mellanox networking and interconnect solutions; automotive AI Cockpit, autonomous driving development agreements, and autonomous vehicle solutions; and Jetson for robotics and other embedded platforms. Its platforms address markets such as Gaming, Professional Visualization, Data Center, and Automotive.

 

 

Earnings: $1.04, adjusted, vs. $1.01 expected

Revenue: $6.51 billion, vs. $6.33 billion expected

The company completed a 4:1 stock split in July

 

Gross margins was 66.7%, up 70 basis points from a year earlier, reflecting higher ASPs within desktop, GeForce, GPUs, and continued growth in high end Ampere architecture products, partially offset by a mix shift within datacenter. EPS was $1.04, up 89% from a year earlier, adjusting for the 4-to-1 stock split effective this quarter, Q2 cash flow from operations was a record $2.7 billion.

 

 

Graph segment

Nvidia’s graphics segment, which is primarily made up of graphics cards, grew 87% to $3.91 billion, growing faster than the compute and network segment, which includes chips for data centers. Compute and network grew 46% to $2.6 billion.

Broken down by market instead of the reportable segment, one highlight was gaming, which was up 85% to $3.06 billion. Nvidia has had supply issues since late last year as its latest line of graphics cards has remained mostly sold out in stores, and the company said in May that it expected supply issues through the second half of the year. The company said that it was seeing longer lead times throughout its supply chain.

Nvidia said the increase in gaming sales was due to both GeForce graphics card sales as well as the chips it sells to game console makers, such as the processor at the heart of the Nintendo Switch.

Datacenter

Nvidia’s data center business also hit an all-time high, growing 35% annually to $2.37 billion, which the company attributed to graphics cards for data centers, both in industrial uses and among cloud providers.

Professional visualization

Nvidia’s professional visualization segment, mostly graphics cards for high-end professional workstations, was up 156% annually to $519 million. Its automotive business remains a small portion of the company’s sales, with $152 million in sales, down sequentially from the most recent quarter and up 37% from the same quarter last year, which was in the middle of the global Covid-19 pandemic that snarled auto production.

Last year, Nvidia said it planned to buy Arm, which makes important intellectual property for mobile chips, for $40 billion. The deal is opposed by some of Nvidia’s competitors, which worry that they may lose access to important Arm technology.

 

 

Automotive

Q2 revenue was $152 million, down by 1% sequentially and up 3% YoY. Sequential revenue declines in infotainment were largely offset by growth in self-driving.

Data Center

Revenue of $2.4 billion, grew 16% sequentially and 35% from Q2 2020, which was our first quarter to include Mellanox.

 

Outlook Q3 2021

For fiscal Q3, management expects revenue of $6.80 billion, representing growth of 44% year over year. It also guided (albeit indirectly, by providing a bunch of inputs) for adjusted EPS of $1.10, representing a growth of 51%.

Going into the release, Wall Street had been modeling for fiscal Q3 adjusted EPS of $1.04 on revenue of $6.53 billion, so Nvidia’s outlook easily exceeded both estimates.

In 2021, Nvidia stock has returned 45.9% through Wednesday’s regular trading session. The S&P 500 has returned 18.2% over this period.

 

 

 

 

 

 

 

 

 

 

 

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