Nvidia Makes Earnings Count, And Then Some

Not only did Nvidia handily beat estimates but, along with the beat and raised guidance, the company showed why its no longer just a gaming chip-maker anymore.

Nvidia reported Q1 earnings of $0.85 per share on revenues of $1.94 billion versus Wall Street expectations of $0.67 per share and $1.91 billion, respectively.

Nvidia guided the current quarter to revenues of $1.95 billion (plus or minus 2%) versus consensus of $1.89 billion. Gross margins were guided to a range between 58.4% and 58.6% or 58.5% at the midpoint.

It's not the beat on earnings estimates or the guide higher by Nvidia that has investors excited enough to pop the shares higher last night and this morning. What has investors absolutely chomping at the bit to buy or add (and maybe cover if one is short) to their positions is the areas that Nvidia showed the greatest momentum.

Thus far, Nvidia has been known mostly as a gaming chippy company. However, the last several quarters, investors have been rightly bidding up Nvidia shares on its artificial intelligence (AI) capabilities within data centers and automotive (among others), and those are the areas that Nvidia showed the greatest progress in its just reported quarter.

For the quarter, the company reported gaming related revenue of $1.03 billion versus sell-side consensus expectations of $1.11 billion.

The company said that, on the flip side, its data center business had revenues of $409 million for 186% year-over-year growth. Recently, companies like Google and Tencent Holdings have joined the likes of Amazon AWS and Microsoft Azure in using Nvidia's graphic processing units (GPUs) to their respective cloud offerings. Wall Street analysts were expecting revenues of $318 million from the segment.

Nvidia's automotive side of the business, while still a small percent of overall revenues, showed impressive growth in the 24% range year-on-year. The auto segment reported revenues of $140 million versus Street expectations of $132 million. According to the company, there are now over 220 automotive and auto-related organizations that are using Nvidia's automotive platform, including the likes of Audi, Daimler Benz and Bosch.

Nvidia's continued success in automotive and cloud more than made up for the slight short-fall the company reported in its "old" gaming processing line of business. Lest one think that the company is slowing down in the gaming chip side of its business, growth in that segment was up almost 50% year-on-year from the $687 million reported in the same quarter a year ago. Not something to sneeze at, no?

On the conference call after the earnings release, CFO Colette Kress said, "All of the world's major internet and cloud service providers now use Nvidia's Tesla-based GPU (graphics processing unit) accelerators."

If that statement alone does not get investors excited about the future for Nvidia, I am not quite sure what will, especially if one considers the global growth in data and related data center business from the biggest companies across the world like Amazon, Google and Microsoft, to name just a few.

Words to the wise.

One further critical takeaway from Nvidia's quarter is the fact that with its raised guidance, Nvidia put paid to a key argument by the darksiders that the company was losing ground to rival AMD. In fact, not only did Nvidia raise guidance for the current quarter while AMD guidance for its own current quarter was subdued at best and downright disappointing given easy relative compares, growth for Nvidia in cloud and auto was also stronger than what AMD was able to show when it reported numbers a week or so ago.

Shares of Nvidia closed at $102.94/share last night at the close of regular market trading, up $0.17 per share. In early pre-market trading activity, they are currently indicated at $113.74/$114.18 per share on 17.4K shares traded.

(Long nvda, amzn, googl, long and short options on all three)

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