While some of Nvidia's (NVDA) - Get Report data center businesses are stronger than others right now, the GPU giant clearly expects very broad-based strength in its gaming businesses in the back half of 2020.
Following a triple-digit 2020 gain heading into earnings, Nvidia’s stock is up fractionally after it beat July quarter estimates and issued October quarter sales guidance that was comfortably above consensus. Gaming revenue, which covers gaming GPU and console processor sales, rose 26% annually last quarter, while Data Center revenue, which covers server GPUs, Nvidia's DGX servers and recently-acquired Mellanox Technology’s interconnect products, officially rose 167% and was up around 85% on an organic basis.
On the earnings call, CFO Colette Kress forecast that Gaming revenue, which might soon get a boost from the launch of Nvidia's first Ampere-architecture desktop GPUs, would be up “just over 25%” sequentially this quarter. Data Center revenue is expected to be up a low-to-mid single-digit percentage, as on-premise enterprise hardware spending pressures are offset by continued strength among internet/cloud giants (the proverbial hyperscalers).
Following Nvidia’s call, I talked once more with Kress about how demand is trending across various Nvidia’s businesses (a May interview can be found here, and a February interview can be found here). Here are some notable comments that were made, slightly edited for clarity.
How various Nvidia gaming businesses are currently trending.
“Across the board, whether it be desktops, notebooks and/or our console business, [there was] quite a bit of sequential growth [within] Q2. Our notebooks are on their tenth quarter of year-over-year growth, and doing quite well, as we've opened up to the thin-and-light [segment] and incorporated high-end GPUs into notebooks, [and] as people work from home, learn from home, game from home....We've [also] benefited from people going back to school.
“All of these things continue to influence the world of overall gaming, and people are looking for [a source of entertainment] as they are working from home, or going to school from home. And gaming has [seen] a great uptick.”
"As we move from Q2 to Q3, we do continue to see that demand, going from Q2 to Q3 in gaming. And we do expect our [gaming] portfolio across the board to grow.”
Nvidia’s expectations (amid very strong Nintendo Switch demand) for Switch processor shipments in the October quarter.
“Generally Q2 and Q3 are important...for the building of consoles, as [console makers] usually get ready for the overall demand associated with the holiday season that’s coming up...So we will [wait and see] what that may be, but yes, we will likely see an increase [in shipments within] Q3.”
How much of Nvidia’s Data Center revenue ($1.75 billion in the July quarter) now comes from hyperscalers as opposed to traditional enterprises and supercomputer builders, in the wake of the Mellanox acquisition and the ramp of Nvidia’s A100 GPU.
“In our [fiscal] Q1 results, our hyperscalers did well, as it was our first quarter of launching A100. As we moved to Q2, we [continued] that ramp of A100 in our Data Center [segment], but we also added Mellanox to that. So now we kind of have a new mix of those two things together.
“Our hyperscalers are approximately 50% -- a little bit more than 50% -- of our total Data Center revenue, inclusive of Mellanox. Our vertical industries and our enterprises make up about 40%. And our supercomputing [business] is still a relatively small percentage, but likely a growing opportunity for us, and probably about 5%.”
"Yeah, they're an important area of growth...More and more, probably one of the most popular places for developers on CUDA, has been our Jetson platform. Our Jetson platform is an important underpinning of many of what people are building in the edge [and] overall robotics."
“It’s still a small business, as it is still working to get larger as robotics becomes a bigger part of the type of compute at the edge that's being done. So you will see it right now captured in our [OEM & IP] business, and [it is] our smallest overall...segment that is there. We have continued to see good growth with it, but it's still early in its development over the next couple of years."
The ongoing adoption of Nvidia GPUs for AI inference workloads.
“Our only [inference-specific] product is our T4 [GPU], for which continued to grow year-over-year in the last quarter...But then we have adopted and launched our A100. That is a platform that allows you to do training and/or inferencing with the same chip, and the same system. And so in this case, we don't have a good understanding yet in terms of how much of the workloads are training or inferencing. If not, it's likely both."
“But we are still making tremendous progress. Even with our T4, we continue to grow year-over-year.”
How gaming GPU average selling prices (ASPs) are trending.
“[ASPs] are always going to be about mix. We have continued [to see] an upward momentum in our overall ASPs. Particularly in notebooks, as we are working on higher-end GPU adoption inside of those systems...I don't have all of the [data] in front of me, but yes, it is an area of growth that we do think can continue for some time.”