Nvidia's Earnings Beat: One Big Takeaway From the Print

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Nvidia (NVDA) - Get Report reported a solid fiscal year 2020 third quarter and issued encouraging commentary about its data center business, sending shares higher. The stock was rising 0.1% to $210.00 a share Friday in premarket trading.

Revenue was $3.014 billion, beating Wall Street expectations of $2.92 billion. Earnings per share was $1.78, beating analysts expectations of $1.58. The gross margin was 64.1%, against expectations of 62.2%. The company said the gaming business, which usually represents over half of the company's revenue, was a large driver of the revenue beat. 

Guidance for the fourth quarter of 2020, the current quarter, was soft, however. Management said it is looking for revenue of $2.95 billion, against analysts hopes of $3.066 billion, although the gross margin guide beat (64.5% v. 62.6% expected). 

But wrapped into that guidance was something investors want to see -- namely, solid data center revenue. "Investors are likely to focus most on the data center results/trajectory (with recovery hopes on cloud pickup & Intel's results)," wrote Alliance Bernstein analyst Stacy Rasgon in a pre-earnings note. "This is what will likely drive the stock from here."

Data center revenue had missed expectations in the prior quarter. While gaming revenue is expected to grow below 20% each year for the next few years, data center revenue is expected to grow roughly 30% annually for the next few years. 

And while revenue guidance missed estimates, the company did note in its release that "we see strong data center growth ahead, driven by the rise of conversational AI and inference." And Nvidia added in the guidance section that "strong sequential growth is expected in Data Center, offset by a seasonal decline in GeForce notebook GPUs and SoC modules for gaming platforms." 

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