No matter how you slice it, NVIDIA (NASDAQ:NVDA) had a fantastic quarter, with sales gains well beyond what many saw coming. Yet despite it all, NVIDIA shares still lost about 3% in pre-market trading on the one bit of bad news the company managed to bring to the table. For investors, however, this shouldn't matter, and the idea of using this slip as a way to get in on the action may be the smartest idea yet.
One Amazing Quarter...
The quarter was spectacular by nearly every account. Earnings were a massive beat, as a Refinitiv consensus was expecting $2.57 per share in earnings from NVIDIA. NVIDIA instead posted $2.91 per share. Revenue proved to be similarly exciting for NVIDIA,with an expected $4.41 billion, but an actual $4.73 billion hitting NVIDIA's coffers instead.
The hefty gains in revenue actually represented a record for the company, which was up 57% against the same time last year. Quarterly profit posted a similar, though unquantified, record for the company. Based on word from CEO Jensen Huang, the company was expecting big things out of its gaming division, and it got them. With a new line of graphics cards calling on the Ampere technology, the company saw its revenue and sales spike. The GeForce RTX 3080, which was one of the new Ampere cards, saw its entire stock sell out almost immediately. This was in keeping with overall revenue from the gaming market, which for NVIDIA, was up 37% from last year, bringing in $2.27 billion by itself.
...Does Not a Future Make
Yet despite these positively dizzying numbers, with record sales and huge profit growth, the company still, as noted previously, managed to lose ground on its share price. How is that possible, you mutter bleakly at your computer screen? As it turns out, many investors loved the gains, but questioned just how sustainable these might be.
More specifically, it was issues of NVIDIA's data center sales operations that were called into question. The gaming product line was amazing by any measure, but there were signs that the data center line may slip going forward. The data center operations were a big, and very new, part of NVIDIA's overall profit picture; just last quarter, data center operations brought in more cash for the company than gaming did, which was an amazing proposition in its own right. However, this quarter, the data center revenues slipped back behind the gaming revenues, as data center operations brought in just $1.9 billion in sales. Moreover, the company expects data center revenue to decline in the current quarter, which means two straight quarters of decline for an operation that was starting to look like a major new force.
Yet New Quarters Remain to Come
There's no reason to pull the plug on NVIDIA just yet. After all, based on our latest research, the company is not only a “trending stock” but also one of the “most-upgraded stocks” in the lists. It's currently acknowledged as a “buy” as well, with four “sell”, four “hold” and 29 “buy” ratings to its credit. That's the same proportion it was a month ago, and down just two “buy” ratings from three and even six months ago. NVIDIA's price target has also been trending upwards, going from $517.26 last month to $531.69 this month.
Plus, NVIDIA has plenty of tricks up its collective sleeve going forward. First, it's got a whole new way to compress video calls known as Maxine. Maxine calls on neural networks to take what amounts to keypoints of visual data—the outlines of a face, for example—to transmit only that bare-bones structure to be recreated on a local device. This can actually reduce the requirement for bandwidth in video conferencing ten-fold, a major development for our work-at-home culture.
Throw in further developments like GeForce NOW, which gives customers more options in terms of where to get games for streaming, and the recently-leaked statistics on the upcoming RTX 3060 Ti that blows away older GeForce cards—not to mention the current product lines of competitors—and it's clear that NVIDIA is not resting on its collective laurels.
Sure, the company's data center revenues are set to drop in the next few months. This should be expected. You can only build so much data center before you have all you need for the time being. The data center business is likely to come back as products improve, and NVIDIA will have already built name recognition in that should make current customers come back for more. NVIDIA may have slipped in its share price a little recently, but looking at what it's got on tap suggests that NVIDIA will be a big name in computing for some time to come.
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