By Sonam Rai and Stephen Nellis
(Reuters) - Too many cryptocurrency clients and fewer cloud computing orders than expected underwhelmed Nvidia Corp (NVDA.O) investors on Thursday, although the graphics chip maker said a supply shortage that hit its core video game audience had eased.
The U.S. company best known for chips that enhance video game graphics has diversified into an array of businesses including artificial intelligence, self-driving cars and digital mining, but investors are most concerned with its inroads in the market for cloud computing.
Revenue from Nvidia's data centre business, which powers cloud-based services such as Amazon.com's (AMZN.O) Amazon Web Services, Microsoft Corp's (MSFT.O) Azure as well as Alphabet Inc's (GOOGL.O) Google Cloud, rose 71 percent to $701 million, but missed analysts' estimate of $703 million, according to Thomson Reuters I/B/E/S.
The Santa Clara, California company for the first time disclosed that it made $289 million in sales - about 9 percent of its overall $3.2 billion in revenue - from chips for mining cryptocurrencies.
Analysts had expected $200 million and the greater reliance on the fast-growing but volatile business contributed to shares falling 3.3 percent to $251.66 in extended trading. Nvidia shares have gained 34.4 percent this year, propelling the stock to the top of the Philadelphia Semiconductor Index (.SOX). They touched a record high at $260.50 on Thursday before the announcement.
Chief Financial Officer Colette Kress said that the company expects cryptocurrency-related revenue to fall 65 percent to about $100 million in the next quarter. Retail prices for Nvidia's gaming chips surged earlier this year as miners snapped up chips, a development Nvidia addressed by releasing mining-specific chips.
"While supply was tight earlier in the quarter, the situation is now easing," Kress told investors on a conference call. "Gamers who had been priced out of the market last quarter" were able to get their hands on new chips a reasonable price, she said.
Analyst Kevin Cassidy from Stifel said the reliance on cryptocurrency concerned some investors. Moreover, he said, Nvidia's earnings were mostly in line with expectations, "which may not be good enough for shares trading at 40x forward earnings."
Data centre industry sales have boomed as cloud services build out new facilities. Intel Corp (INTC.O) last month said it had posted its biggest-ever quarterly jump in its data centre business. For its part, Nvidia said it doubled sales of chips used by cloud companies for so-called deep learning.
Patrick Moorhead of Moor Insights & Strategy said he was not concerned by the lower-than-expected data centre revenue because the buying patterns of huge cloud customers were "lumpy."
Revenue from Nvidia's best-known business of gaming chips rose 68 percent to $1.72 billion, beating analysts' average estimate of $1.65 billion.
"At the core of it, gaming is strong," Chief Executive Jensen Huang told investors on the conference call. "The pent-up demand is quite significant and I'm expecting the gamers to be able to buy new GeForces pretty soon."
A cryptocurrency boom has powered growth at Nvidia and rival Advanced Micro Devices Inc (AMD.O), but the sector is battling volatility caused by swings in the currency's value.
Revenue from Nvidia's automotive business, which includes its Drive platform used in self-driving cars, rose 4 percent to $145 million, also topping analysts' estimate of $132 million.
Nvidia in March suspended self-driving tests across the globe, a week after an Uber Technologies Inc [UBER.UL] autonomous vehicle struck and killed a 49-year-old woman crossing a street in Arizona. But CEO Huang remained optimistic.
"I expect that driverless taxis will start going to market about 2019," Huang told investors.
The company's net income rose to $1.24 billion, or $1.98 per share, in the first quarter ended April 29, from $507 million, or 79 cents per share, a year earlier.
Total revenue rose to $3.21 billion from $1.94 billion.
Excluding items, Nvidia earned $2.05 per share.
Analysts on average had expected revenue of $2.91 billion, according to Thomson Reuters I/B/E/S.
(Reporting by Sonam Rai in Bengaluru and Stephen Nellis in San Francisco; editing by Peter Henderson and Lisa Shumaker)