NVIDIA Corporation (NASDAQ:NVDA) Datacenter Business Is Expanding

November 16, 2017, 12:32 pm ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

NVIDIA Corporation (NASDAQ:NVDA) recently reported its third quarter results, which surprised Wall Street analysts by beating expectations. Most of the growth reported by the chipmaker was driven by higher demand for its graphics chips serving the gaming and datacenter markets.

Article Summary

NVidia recently launched its Tesla V100 chip that serves the datacenter market.

The new chip is doing extremely well due to massive demand from datacenter providers.

The new chip is likely to drive the company’s future growth.

Here’s the trading report on NVDA.

The recently launched Volta chips targeting the data center market was the second-biggest revenue generator for the company after its gaming chips. The demand for the Volta chip was largely driven by cloud services providers and clients who require high-performance artificial intelligence chips.

The company’s rise in the datacenter segment has prompted its main competitors Intel Corporation (NASDAQ:INTC) and Advanced Micro Devices, Inc. (NASDAQ:AMD) to go back to the drawing board. Intel and AMD have partnered to form the Core and Visual Computing Group with the main aim of developing a Graphics Processing Unit (GPU) that rivals NVidia’s Volta chip.

The company’s datacenter business was performing poorly before the launch of the Tesla V100 data center GPU in May, which transformed the segment into a massive revenue generator for NVidia. The chip is currently being used by some of the largest datacenter providers including Amazon.com, Inc. (NASDAQ:AMZN) web services division and Microsoft Corporation (NASDAQ:MSFT) Azure cloud platform.

The Tesla V100 GPU chip is being billed as one of the best high-performance chips that can power AI systems, which means that demand for the chip is poised to grow into the foreseeable future. Intel and AMD do not currently offer a chip that can match the V100’s performance, which is why they have formed a partnership to develop a chip that could rival NVidia’s chip.

Being first to the market also gives NVidia a significant advantage over its competitors who are playing catch up, while the company continues to grow its market share in this very lucrative market segment. The company’s gaming segment is also growing given that it is still the biggest revenue generator for NVidia.

The company’s future prospects appear to be quite promising given that its datacenter business is likely to become its largest revenue stream even as demand for gaming chips slows down. The gaming market is nearing maturity, which could lead to lesser demand for NVidia’s gaming chips, but the datacenter market is still in its infancy with significant future growth potential.

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