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NVIDIA's (NVDA) Data Center, Gaming Segments to Aid Q3 Earnings

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  • NVDA
  • AMD
  • QCOM
  • INTC

NVIDIA Corporation NVDA is slated to report third-quarter fiscal 2022 results on Nov 17. The company’s fate is tied to its data-center and gaming segments, which account for a bulk of the graphic-chip maker’s revenues.

The two end-market segments are likely to continue benefiting from stellar demand for chips used in cloud computing, data centers and gaming. Solid year-over-year and sequential top-line growth in both the divisions for the last reported quarter, and management's upbeat guidance for the soon-to-be-reported quarter raise optimism.

NVIDIA is benefiting from the pandemic-induced work-from-home and online-learning wave. A surge in the Hyperscale demand is a tailwind for the company’s data-center business. Moreover, robust growth in GeForce desktop and notebook graphics processing unit (GPUs) is boosting NVDA’s gaming revenues.

The Zacks Consensus Estimate for the data-center segment’s fiscal third-quarter revenues is pegged at $2.76 billion, indicating a jump of 45% year on year and 17% sequentially. Its gaming division’s sales are expected to surge 40% year over year and 4% sequentially to $3.17 billion.

Click here to know how NVIDIA’s overall fiscal third-quarter performance is anticipated to be.

Shares of NVIDIA have outperformed the Zacks Semiconductor – General industry in the year-to-date (YTD) period. While the NVDA stock has surged 132.8% YTD, the industry has gained 66.2% during the same time frame.

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Data Center Business to Reflect Continued Momentum

NVIDIA’s data-center business is likely to have continued the growth momentum during the third quarter on an accelerated adoption of cloud-based solutions amid the remote-working and online-learning trends.

Lockdown, travel restrictions and social-distancing measures adopted by governments across the world to contain the spread of COVID-19 have boosted the usage of online and e-commerce services globally. Also, the pandemic-induced work-and-learn-from-home wave is stoking demand for cloud storage. Therefore, data-center operators are enhancing their capacities to accommodate this demand spike for cloud services.

The data-center business presents solid growth opportunities for NVIDIA. As more businesses are shifting to cloud, the need for data centers is surging. This is likely to have supported NVIDIA’s quarterly performance. The increase in Hyperscale demand and growing adoption in the inference market are anticipated to have acted as the tailwind as well.

The rising adoption of Conversational AI (artificial intelligence) among hyperscale customers is likely to have been a key driver during the period in discussion. NVIDIA considers Conversational AI to be a powerful catalyst for the company in both training and inference. Also, the rising adoption of Natural Language Processing by cloud players is expected to have been an upside during the fiscal third quarter.

The growing adoption of the company’s T4 GPU in public clouds makes NVDA optimistic. Solid public cloud deployments and higher demand for AI video analytics applications are fueling demand for its T4 GPUs.

What Would Have Driven Gaming Business?

NVIDIA’s quarterly performance is likely to have gained from the pandemic-induced stay-at-home instructions, spurring demand for its gaming chips as people surf games to stay engaged and entertained indoors.

In the last reported quarter, revenues from the gaming business unit shot up 85% year over year and 11% sequentially to $3.06 billion on higher sales across the company’s notebook and desktop gaming GPUs, and game console system-on-chips.

Better visualization and speed are needed for a thrilling gaming experience, which NVIDIA successfully provides through its portfolio of Pascal architecture-based GPUs. Moreover, with the emergence of massively multiplayer online games and Gaming-as-a-Service concepts, the demand for GPUs has been shooting up exponentially. The trend is likely to have positively impacted Zacks Rank #2 (Buy) NVDA’s gaming business during the to-be-reported quarter.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Strong Earnings Season for Semiconductors

Strong chip demand amid the ongoing work-and-learn-from-home and accelerated digitalization trends has led to a great earnings season for semiconductor companies. Let’s take a quick look at the latest quarterly performance of the major semiconductor players – Advanced Micro Devices AMD, Qualcomm QCOM and Intel INTC.

Advanced Micro Devices’ adjusted earnings increased 78% year over year to 73 cents per share in third-quarter 2021 and surpassed the Zacks Consensus Estimate by 10.6%. Revenues of AMD surged 54% to $4.31 billion, exceeding the consensus mark by 4.7%.

Advanced Micro Devices expects fourth-quarter revenues of $4.5 billion (+/-$100 million), indicating year-over-year growth of 39%. For 2021, AMD raised its revenue growth projection to 65% from 60% anticipated previously.

Qualcomm’s fourth-quarter fiscal 2021 earnings of $2.55 per share beat the Zacks Consensus Estimate by 29 cents. Also, QCOM revenues of $9.32 billion beat the consensus mark of $8.88 billion.

For first-quarter fiscal 2022, Qualcomm expects GAAP revenues between $10 billion and $10.8 billion. Non-GAAP earnings per share for QCOM’s first-quarter fiscal 2022 is forecast at $2.90-$3.10.

Intel’s third-quarter 2021 earnings jumped 58.3% year over year to $1.71 per share and beat the Zacks Consensus Estimate of $1.11. Revenues of INTL were up 5% year over year at $18.1 billion but were slightly below the estimated $18.2 billion.

For the fourth quarter of 2021, Intel expects revenues of about $18.3 billion and earnings per share of 90 cents. For the full year, INTC projects revenues of approximately $73.5 billion and earnings per share of $5.28.

Currently, Advanced Micro Devices and Qualcomm carry a Zacks Rank #2, while Intel has a Zacks Rank #3 (Hold).

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