As much as Nvidia wants investors to think of it as a data-center company, in some ways this change is incomplete.
With Wednesday’s earnings report, Nvidia crossed a significant threshold. For the first time, its data-center business brought in more revenue than its gaming business – though it is an Israeli networking company with a 30% increase from the acquisition of Melanox. Jensen Huang, the founder and CEO, spoke about data-center computing in a conference call about the future of business and the specific way Nvidia (ticker: NVDA) was indexed into broader trends in mass computing.
The latest quarterly strong videogame results made Suquehanna Financial Group analyst Christopher Roland a bit outlandish. Ultimately, the company is set to introduce its next generation graphics processing unit for the game in less than two weeks. So why buy a new graphics card now?
Potentially, he wrote, this is a sign of good things to come, but as Baron’s As previously written, Nvidia’s new chips have proved a fickle beast for investors, which does not always indicate the following quarter of strong revenue growth.
Regardless, video games were the star of the show, according to Roland, possibly leaving investors to know what should come for data centers. “Gaming Upside was clearly the star of the show, was more in-line with Data Center Street and could disappoint the fastest of investors,” he wrote.
Still, there were positive points on the data-center business for investors to note, even though CFO Colette Cress said the company expected a low-to-mid single-digit increase for the fiscal third quarter.
For one, Amazon.com (AMZN), Google’s Alphabet (GOOGL), and Microsoft (MSFT) are adopting new ampere chip designs for their cloud operations. For another, Melanox, which makes high-speed networking equipment and which Nvidia bought for $ 6.9 billion, exceeded expectations and contributed $ 1.75 billion to the $ 540 million data center.
City Research analyst Atif Malik wrote that Nvidia’s results did not change its perspective about data centers. His team has continued a 10% peak model for trough decline in the second half of the year due to demand for work with a 20% drop in the first half of 2019. We believe that workload diversification and new ampere product malik helped mitigate the decline this time.
For investors, the results have not settled many debates about the stock, according to RBC Capital Markets analyst Mitch Staves. On Thursday, after opening at a low, the stock rebounded and soared 0.8% to $ 489.59 in afternoon trading.
In a note to customers, Steeves wrote that one aspect of the debate revolves around whether data-center demand will continue to be strong and when the company begins to see more revenue from autonomous-driving, which has led to the late bluff .
Then there is the matter of valuation. Nvidia is the third most expensive stock in the PHLX Semiconductor Index, earning 49.5 forwards. As Staves wrote, investors are still asking: “Given the low visibility in demand for a data center, given its market-leading position, what is right for many to place on the stock?”
Of the 42 sell-side analysts covering Nvidia, 34 put it a buy, six a hold and two put a sell on the stock. The average target price is $ 506.65, a 3.5% upside.
Nvidia’s shares have more than doubled this year as the S&P 500 index rose 5.8%. PHLX has increased by 18%.
Write Max A. Cherney at [email protected]