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NVIDIA Earnings Soar 91%, but Cryptocurrency Bust Spooks the Market

Beth McKenna, The Motley Fool

NVIDIA Corp. (NASDAQ: NVDA) reported strong fiscal second-quarter 2019 earnings after the market close on Thursday. The graphics processing unit (GPU) specialist's revenue jumped 40% to $3.12 billion, earnings per share soared 91% to $1.76, and EPS adjusted for one-time factors rocketed 92% to $1.94.   

Wall Street was expecting EPS of $1.66 on revenue of $3.11 billion, so NVIDIA easily surpassed the earnings expectation -- as it's been doing for some time -- and edged by the top-line consensus. 

NVIDIA shares declined 4.6% in after-hours trading on Thursday. The culprit was third-quarter revenue guidance coming in lower than Wall Street was expecting, due to the company anticipating that sales to the cryptocurrency market will continue to decline significantly. Small stock pullbacks like this aren't even a blip in the bigger picture, as shares have returned nearly 1,000% over the last three years.  

Profile of a person overlaid on a semiconductor and digital background -- concept for AI.

Image source: Getty Images,

The key numbers

Metric

Fiscal Q2 2019 

Fiscal Q2 2018

Change (YOY)

Revenue

$3.12 billion

$2.23 billion

40%

GAAP operating income

$1.16 billion $688 million 68%

GAAP net income

$1.10 billion  $583 million 89% 

Adjusted net income

$1.21 billion  $638 million  90% 

GAAP earnings per share (EPS)

$1.76 $0.92  91%

Adjusted EPS

$1.94 $1.01 92% 

Data source: NVIDIA. GAAP = generally accepted accounting principles. YOY = year over year.

GAAP gross margin came in at 63.3%, up from 58.4% in the year-ago quarter, while adjusted gross margin was 63.5%, up from 58.6%. 

Data center and gaming continue to lead platform results

Platform

Fiscal Q2 2019 Revenue

Change (YOY)

Change (QOQ)

Gaming

 $1.81 billion

52% 

5%

Data center

 $760 million 

83%

8%

Professional visualization

 $281 million

20% 

12%

Automotive

 $161 million

13%

11%

OEM and IP

 $116 million

(54%)

(70%)

Total

 $3.12 billion

40%

(3%)

Data source: NVIDIA. OEM and IP = original equipment manufacturer and intellectual property. YOY = year over year. QOQ = quarter over quarter.

Gaming GPU growth was driven by brisk sales of GPUs for desktops, and by high-performance notebooks based on the company's Max-Q technology, CFO Colette Kress said in the CFO commentary. (Max-Q tech enables the company's GPUs to be used in very thin and light laptops optimized for gaming.) Data center's rapid growth continues to be powered by sales of products based on NVIDIA's Volta GPU architecture, namely the Tesla V100 GPU and the DGX supercomputing systems. Volta-based products are optimized for handling the massive data crunching associated with high-performance computing (HPC) and artificial intelligence (AI) workloads. 

OEM and IP revenue declined substantially from both last quarter and from the year-ago period. This was driven by much lower demand for the company's application-specific GPUs for "mining" cryptocurrencies, such as Ethereum, due to the fall off in crypto prices this year. While NVIDIA's overall revenue slightly exceeded the midpoint of its outlook ($3.10 billion +/- 2%) and Wall Street's expectation, crypto revenue came in lower than what management had anticipated. "Our revenue outlook had anticipated cryptocurrency-specific products declining to approximately $100 million, while actual crypto-specific product revenue was $18 million," Kress said. For some context, that's about 0.6% of the company's total revenue in the quarter, while last quarter, OEM sales to the crypto market tallied $289 million, or about 9% of total revenue.

What happened with NVIDIA since the last earnings release? 

NVIDIA has too much going on the cover everything, but the following are some of the biggest highlights that have occurred since last quarter's earnings were released. 

  • In data center, the company introduced NVIDIA HGX-2, which it dubs the "first unified computing platform for both AI and high performance computing."
  • During the quarter, the world's fastest supercomputer, Summit, launched at Oak Ridge National Lab. Summit is "powered by more than 27,000 NVIDIA Volta Tensor Core GPUs," said the earnings release, and is "100 times faster than Titan, previously the fastest U.S. supercomputer, completed just five years ago," according to a NVIDIA blog.
  • Alphabet's Google unit began offering the NVIDIA Tesla P4 GPU, which is optimized for AI inference and graphics virtualization, in its Google Cloud service.
  • Earlier this week, the company unveiled three Quadro workstation GPUs, its first products based on its new Turing GPU architecture. "Turing is the world's first ray-tracing GPU and completes the NVIDIA RTX platform," CEO Jensen Huang said in the earnings release. This platform enables movie-quality images to be produced in real time.

  • In auto, NVIDIA announced that Mercedes-Benz parent Daimler and Bosch have selected the company's DRIVE platform "to bring fully automated and driverless vehicles to city streets, with pilot testing to begin next year in Silicon Valley."

A great quarter

NVIDIA, once again, turned in terrific quarterly results.

In the third quarter, the company guided for revenue of $3.25 billion, plus or minus 2%, representing growth of 23% year over year. This is lower than the $3.37 billion that Wall Street was expecting. Investors shouldn't be concerned, as the lighter-than-anticipated outlook isn't related to the company's four target market platforms, but to management "now projecting no contributions going forward" from cryptocurrency, whereas it "had previously anticipated cryptocurrency to be meaningful for the year," Kress said. In recent quarters through last quarter, the crypto market has provided a nice tailwind to NVIDIA's results, but that's been a "bonus," as the company doesn't need this market to succeed. 

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Beth McKenna owns shares of Nvidia, and has no position in any cryptocurrencies mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Nvidia, and has no position in any cryptocurrencies mentioned. The Motley Fool has a disclosure policy.