Nvidia CEO Says the Stars Aligned for a Blowout Quarter

Nvidia CEO Jensen Huang told investors that the chipmaker lies at the center of permanent, "structural" changes in technology.
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Against the backdrop of a global pandemic, practically everything seemed to go right for Nvidia last quarter. 

The chip giant topped Wall Street's already-high expectations for both earnings and revenue, reporting $3.08 billion in sales, versus a $2.98 billion consensus, and GAAP earnings of $1.47 versus a $1.39 consensus. Shares of Nvidia  (NVDA) - Get Report inched 0.30% lower after hours after closing at $351.01 on Thursday. 

On a call with shareholders, Nvidia CEO Jensen Huang and CFO Colette Kress described a combination of tailwinds that generated 39% sales growth in the March quarter and solid forward-looking guidance of $3.65 billion in the current quarter. Analysts were expecting revenue guidance of $3.15 billion. 

The revenue beat was driven by Nvidia's data center segment, which rose 80% year-over-year and topped $1 billion in sales for the first time. 

Its acquisition of Mellanox, which closed on April 27, is an "extraordinary" addition to Nvidia's data center profile, Huang said. 

Analysts have hailed the deal as highly accretive to Nvidia's overall results. Kress said that Mellanox will account for a "low-teens percentage" of total revenue for the current quarter, which is the first full quarter that Mellanox's contributions will be accounted for. Nvidia plans to retain the full Mellanox team and accelerate investments in the firm, Nvidia management said.

Nvidia's extensive footprint in gaming was also a boon in the pandemic, despite the impact of retail closures. 

"The top three games in the world today are Fortnite, Minecraft and Animal Crossing...all three are on Nvidia platforms," Huang said. "We have all the dynamics working in our favor and we’ll have to see how it turns out."

Strong e-tail sales and soaring demand for gaming -- Nvidia reported a 50% rise in gaming hours played on its GeForce platform -- offset the impact of in-person sales of gaming laptops and hardware. Huang also hailed Nvidia's RTX lineup of graphics cards, aimed at ray tracing technology, as a "home run" that will eventually become the mainstream standard. 

Kress added that Nvidia's gaming segment will see a sequential gain this quarter. Automotive sales will decline 40% this quarter, and its professional visualization services will decline as well, she said. 

Huang was confident about Nvidia's longer-term positioning, saying that the pandemic is creating a "structural" change in technology consumption. Much of that change will be permanent, and Nvidia is poised to capture new streams of technology demand, according to Huang.

Huang described a new urgency for advanced computing for disease detection and defense, as well as overall moves to hybrid cloud computing by enterprises. Analysts view the new work-from-home standard as driving faster, and largely permanent adoption of cloud environments and services. 

Likewise, demand for AI, robotics, and industrial edge computing, all of which will make it easier to manage enterprises remotely, is growing fast, Huang added. 

"These dynamics are really good for us," he said.