Nvidia signals that the growth of data center business will slow

Nvidia Corp. suggested that the growth of its data center business will slow, sending shares of the chipmaker down 1.4% in extended trading on Wednesday.

Nvidia Chief Executive Officer Jensen Huang said the Covid-19 lockdown has accelerated trends that were already in place and that the use of his company’s technology will continue to increase. (Nvidia)

Nvidia's Chief Financial Officer Colette Kress said data center sales will grow in the “low-to-mid single digit” percentage range in the fiscal third quarter, compared with the previous quarter, she said. That's down from a 54% quarter-on-quarter surge in the most-recent period.

While demand from major cloud service providers remains solid, the company has a more “mixed” outlook on spending by companies in some industries, the CFO added during a conference call with analysts.

That quelled investor enthusiasm for the company's quarterly results, which beat Wall Street expectations. Revenue will be about $4.4 billion in the period ending in October, the Santa Clara, California-based company said Wednesday in a statement. That compares with an average analyst estimate of $3.96 billion, according to data compiled by Bloomberg. 

Nvidia is the biggest manufacturer of semiconductors that make video games run on computers as realistically as possible. It's carved out a new multibillion-dollar business selling these components to data center owners that use the chips to speed up artificial intelligence software. Sales from this division exceeded gaming revenue for the first time in the fiscal second quarter.

The global shift to working and studying from home has fired up sales of laptops and increased demand for cloud services that rely on server computers using Nvidia graphics processors.

Nvidia Chief Executive Officer Jensen Huang said the Covid-19 lockdown has accelerated trends that were already in place and that the use of his company's technology will continue to increase.

“This is not a momentary thing, it's clearly the future brought to the present,” he said in an interview. “Nvidia computing is past the tipping point and its getting adopted in so many industries.”

Data center chip sales came in at $1.75 billion in the fiscal second quarter. That was up 167% from the same period in 2019. The most-recent results included the acquisition of Mellanox Technologies Ltd. Revenue from gaming was $1.65 billion in the quarter, up 26% from a year earlier.

The company is in negotiations to acquire Arm Ltd., whose chip designs and technology underpin the smartphone industry. The talks are exclusive and would result in the largest ever industry acquisition, Bloomberg has reported. Huang leads a company that's captured the attention of investors like few others in the last decade. Nvidia's stock ended 2010 at $15.42 and closed at $485.54 in New York on Wednesday. That's given it a market value of about $300 billion, almost $100 billion more than Intel Corp., the world's largest chipmaker.

Huang didn't comment on Arm, other than to praise its technological capabilities and say he loves working and competing with the company.

Gross margin, or the percentage of sales remaining after deducting the cost of production, will be about 62.5% in the current quarter, Nvidia also said.

Profit in the fiscal second quarter was $622 million, or 99 cents a share, compared with $552 million, or 90 cents, a year earlier. Revenue surged 50% to $3.87 billion and profit excluding certain costs was $2.18 a share in the period, which ended July 26, the company said. Analysts, on average, had predicted earnings of $1.97 a share on sales of $3.66 billion.

By Ian King