ii view: Nvidia exceeds expectations

Nvidia reports better than expected revenues and profits.

Second-quarter results ending 28 July 2019

• Revenue down 17% to $2.58 billion
• Net income down 37% to $762 million
• Earnings per share down 36% to $1.24

Founder and Chief executive Jensen Huang said:

“We achieved sequential growth across our platforms. Real-time ray tracing is the most important graphics innovation in a decade. Adoption has reached a tipping point, with NVIDIA RTX leading the way. NVIDIA accelerated computing momentum continues to build as the industry races to enable the next frontier in artificial intelligence, conversational AI, as well as autonomous systems like self-driving vehicles and delivery robots."

ii round-up:

Founded in 1993, NVIDIA Corp (NASDAQ:NVDA) designs computer graphic chips. 

Its chip products are used in a wide variety of end markets including gaming PCs, data centres and automotive infotainment systems. Its products have most recently been used to power high performance computing and artificial intelligence.

The company reported second-quarter results which beat previously reduced analyst forecasts. 

Its core gaming business suffered a 27% decline in sales as it delivered fewer graphics cards for desktop PCs and system-on-chip components for gaming systems.

The group’s data centre business fared better with revenues falling by 14%. Sales for use in large or hyperscale data centres proved muted. But demand for engineering focused on artificial intelligence or AI grew. 

Earlier in the year, NVIDIA agreed to buy Mellanox Technologies for approximately $6.9 billion. Mellanox is a supplier of high-performance, end-to-end interconnect solutions for data centre servers and storage systems. 

Management’s guidance for the third-quarter pointed to revenue of around $2.9 billion, a fall of 9% year-over-year, but an estimated gross margin of 62.5% - ahead of analyst expectations. 

The share price rose by over 6% in after-hours US stock market trading. 

ii view:

NVIDIA describes the Graphics Processing Unit (GPU) as now being the computer brain at the intersection of virtual reality, high performance computing and artificial intelligence. 

Growth prospects for artificial intelligence and high-performance computing, we believe, look enticing. But the exact company winners in these arenas are far from certain. Rival chip maker AMD is competing hard to keep its name in the frame, while companies attempting to garner growth but taking different angles such as Alphabet Inc A (NASDAQ:GOOGL) also need to be considered. 

For investors, a forward price earnings ratio below the three-year average is weighed against revenue and earnings projections currently pointing lower. 

Positives: 

• Exposure to potential growth areas such as artificial intelligence
• Intends to return $3 billion to shareholders by the end of fiscal 2020

Negatives:

• Slow demand from hyperscale data centre customers
• Microsoft gaming sales have recently declined

The average rating of stock market analysts:

Buy