NVIDIA (NASDAQ: NVDA) Investors have been laughing all the way to the bank over the last couple of years, with the share price of the graphics card specialist rising over 240% due to the huge growth in the video game and data center companies.
This year is unlikely to be different given NVIDIA’s latest results and guidance. The company appeared to deliver blowout figures in the fourth quarter of the 2021 fiscal year, and it did. Revenues and revenues rose sharply and ordered consensus estimates by large margins. In addition, NVIDIA delivered outstanding guidance for the current quarter, requiring 72% revenue growth during the previous year to $ 5.3 billion, breaking Wall Street̵
The company went out of the financial year 2021 with 16.7 billion dollars in turnover, an increase of 53% from the previous year. Its fiscal revenue in the fourth quarter increased 61% year-on-year to $ 5 billion. So NVIDIA is starting the new financial year with a bang, and there are a few solid growth drivers that can help it maintain its impressive run.
NVIDIA’s biggest catalyst is booming
The video game business delivered a fantastic performance for NVIDIA last year. Gaming revenue increased 67% this year to $ 2.5 billion, accounting for half of the company’s sales. NVIDIA said they are witnessing incredible demand for the latest RTX 30 Series consumer graphics cards based on the Ampere architecture. During the last earnings conference, CFO Colette Kress said: “The entire 30 series has been difficult to keep in stock, and we went out of the 4th quarter with channel stocks even lower than when we started. Even if we increase supply, channel stocks are likely to remain low throughout Q1. “
It’s clear that NVIDIA expects the huge demand for graphics processing units (GPUs) to continue. This is not surprising, as demand for gaming hardware is holding up well to last year’s pandemic-driven wave. In addition, NVIDIA’s RTX 30 series cards have given their huge installed base of old GPU users a solid reason to upgrade.
The ampere cards are almost twice as efficient as the previous generation Turing cards, and provide a large boost in frame rate while using much less power. More importantly, they have been aggressively priced. This has led to a battle among customers for NVIDIA’s latest card, which has led to tight offers.
In addition, cryptocurrency-related demand also supports NVIDIA’s gaming operations. Quoting analysts estimates, the company says that cryptocurrency miners bought graphics cards worth $ 100 million to $ 300 million last year.
Although not a large number compared to the company’s gaming revenue, it is worth noting that cryptocurrency-related demand has historically contributed to a shortage of GPUs and higher prices. In addition, it should be noted that NVIDIA had nearly $ 2 billion in revenue from cryptocurrency-related sales a few years ago, so that it could win big from this market again due to the growing interest in digital currencies.
NVIDIA wants to get the most out of the cryptocurrency-related opportunity. It recently released dedicated crypto mining processors (CMPs) that they plan to sell to industrial miners. The company forecasts $ 50 million in CMP revenue in this quarter. While it will not move the needle significantly for NVIDIA, it may help the company release bids to meet the demand from actual players and increase sales.
Mordor Intelligence estimates that demand for gaming GPUs could increase at an annual rate of 14% until 2026. This is good news for NVIDIA, as it dominates the discrete GPU market for games with a share of 80%, according to Jon Peddie Research , and it could capture more share from rival Advanced micro devices by improving the supply chain.
The data center business is crushing it
There were concerns about a slowdown in NVIDIA’s data center sales three months ago. The company allayed concerns last year, as data center revenues nearly doubled from year to year to $ 1.9 billion, producing 38% of total revenue.
Such massive growth was driven by an increase in sales of NVIDIA’s A100 data center GPU. The A100 platform has been a success with the best cloud computing companies, and NVIDIA says it is still in the early stages of adoption. Not surprisingly, the chipmaker expects this product to lead to “continued growth this year.”
CEO Jensen Huang also added that the company’s new BlueField-2 data processing unit (DPU) can begin to gain traction in the second half of the year, driven by customer adoption and commitment trends the company has witnessed so far. Huang believes that “every data center node will be equipped with a DPU one day.” Do not be surprised to see this product increase rapidly and eventually become a major revenue opportunity for NVIDIA in a few years.
Analysts expect that NVIDIA will deliver only 20% growth in the new financial year, but the company can easily exceed this estimate given the way it has started the year. That’s why investors who have not yet jumped on the bandwagon of NVIDIA may still consider buying this high-flying growth stock, as it looks set to continue its warm streak.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We are motley! Asking questions about an investment dissertation – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier and richer.