$ 40 Billion Deal And Data Centers: What Nvidia Is Betting On

Data Centers

Nvidia’s revenue for the second quarter exceeded analysts’ expectations and reached a record $ 6.5 billion. The company warned that the shortage of its products due to semiconductors could remain in 2022. What will happen to the company’s shares?

What’s Happened

The financial results of the largest manufacturer of GPUs, Nvidia, for the II quarter of 2021 exceeded analysts’ expectations on the main indicators. However, revenue from sales of video cards for mining cryptocurrencies was one-third lower than the company had predicted. The shortage of video cards may persist in 2022, the company predicts.

What Does It Mean

Nvidia’s revenue in the second quarter grew by 68% year-on-year to a record $ 6.5 billion. Wall Street analysts predicted this figure at $ 6.3 billion; its results exceeded their expectations in almost all areas.

Now Nvidia’s business is growing significantly, as there is a shortage of semiconductors worldwide, and the company’s demand for processors and video cards is growing rapidly, CNBC points out. This demand significantly exceeds the supply of the company.

During a call with investors, Nvidia’s CFO, Colette Kress, said the company had achieved record revenue from gaming graphics cards, data center hardware, and visualization and design solutions sales. The company’s gaming revenue accounted for $ 3.1 billion (an increase of 85% YoY).

Due to the increased demand from miners, Nvidia has allocated a special direction for producing video cards for them and banned mining on gaming video cards.

Nvidia’s revenue from sales of processors for mining amounted to only $ 266 million, although the company had previously predicted that this figure would reach $ 400 million. This decrease in the company is explained by a decrease in the profitability of mining the Ethereum cryptocurrency. In the future, sales in this segment will be marginal, Nvidia’s CFO said.

Why Do I Need To Know This

Bloomberg points out that during the pandemic, the demand for games has grown significantly, but it is not being fully satisfied due to the shortage of semiconductors and supply problems. Problems with the supply of video cards may persist in 2022, Nvidia top managers said in a conversation with investors.

Nvidia graphics cards are used in gaming computers and data centers and, for example, in self-driving cars. The shortage of components is forcing Nvidia to redistribute them between segments – the company has already announced that gaming revenue will grow slightly in the next quarter, and the main driver of growth will be the service segment.

Nvidia’s competitors face similar challenges. Earlier, Intel CEO Pat Gelsinger said that the semiconductor shortage would last until 2023. Therefore, Intel began to increase its chip production capacity, but it will take several years to catch up with demand.

The shortage of semiconductors has led to a rise in the cost of technology; it especially strongly affected the automotive industry – for example, General Motors was forced to suspend the production of pickups at several plants due to the lack of a component base. On the postmarket, Nvidia shares rose more than 2% to $ 196.5 per share. Since the beginning of 2021, the company’s shares have been up 46%.

In the short-term horizon, Nvidia securities may be subject to high volatility due to investors’ worries, including the semiconductor sector’s cyclical nature (the need to upgrade equipment), says the investment strategist VTB My Investments, Victoria Mahaffi. In the long term, the company’s securities will remain the beneficiaries of more fundamental trends in the technology market, she predicts.

The market has already incorporated the successful takeover of the British chip developer ARM for $ 40 billion in the value of Nvidia’s shares, so if the deal does not take place, the company’s quotes may fall, says Vitaly Gromadin, senior analyst at BCS World of Investments.

During the announcement of its financial results for the quarter, Nvidia said that while some Arm licensees objected to the deal and discussions with regulators took longer than originally anticipated, the company is confident the purchase will occur. Bank of America (BofA) analysts also point out that longer approval of the ARM deal and its backlash could affect the stock.

Nvidia expects significant growth due to the reallocation of revenue segments (for example, an increase in the share of revenue from data centers) and expansion of the offer due to R&D investments; analysts predict Goldman Sachs. They expect Nvidia to grow faster than Intel as it expands beyond the GPU market and expands its presence in other segments.

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