Nvidia reports record quarter, crypto mining sales fall

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Nvidia posted earnings that beat expectations as sales jumped. Futurum Research Principal Analyst Daniel Newman joins Yahoo Finance Live to discuss.

Video Transcript

The company earned $3.66 a share on revenue of $5.6 billion. That marked an 85% jump. Its gaming division, the biggest revenue driver, more than doubled its sales in the quarter. Its data center business popped 80%, more than $2 billion.

Let’s bring in our first guest for the hour Daniel Newman, Futurum Research Principal Analyst. Daniel also celebrating his birthday today. Great to have you on today. Not going to publicly embarrass you on your birthday. But walk me through what you saw from Nvidia numbers, because it really was a blockbuster quarter for them, especially with that strength from the gaming side.

DANIEL NEWMAN: Yeah, Thanks for having me and for the shout out. I’m from Chicago, so we like a three-peat here. That’s a Bulls reference for those that followed the Michael Jordan era. But Nvidia now has had its third back-to-back-to-back record breaking quarter. And it just had tremendous results.

And I mean, you’ve got to remember we’re hearing all this talk about shortages. We’re hearing about the chip shortage and the impact that it’s having. But these semiconductor companies like Nvidia, are absolutely blowing away expectations.

For this quarter they had mid-term guidance upgrade, I think that gave a lot of enthusiasm. The stock went up almost 13% in the two weeks leading up to its earnings, which is kind of part of why I think it’s a little soft as a result today, After the earnings.

But the results, I mean, in gaming are strong. The company made some really important moves to support its gaming community and its crypto mining community, which is another new sort of business development opportunity. And then of course, the Data Center Business announced its first CPU that’s going to hit the market in 2023.

So there were so many catalysts for growth. And then, by the way, a 4-for-1 stock split that’s set to take place on July 20th. So Nvidia has got a lot of energy behind it. It’s got a lot of growth, three quarters. And if you looked at the guidance, it looks like this growth isn’t gonna dip low anytime soon.

Yeah I mean, on that stock split, that’s one where I would point out that, you know, it doesn’t really change the fundamentals. But you know, we’ve seen that maybe not play out as it has with Tesla and some other companies, as of late in the tech space that have gone with stock splits. I mean, how much of an impact do you think that could actually have on Nvidia shares?

Yeah, the one interesting thing about the stock split that I’m looking at is the potential for Nvidia to be a future or near term addition to the Dow 30, and a new component. If you look at its market cap– I think it’s about 390 billion as of the close yesterday– it is now outpacing Salesforce, Intel, Cisco, and IBM. And while you’re right the splits for Apple and Tesla haven’t necessarily worked out as many people have thought they may, that addition comes with some cachet, and makes it suddenly a little bit more appealing at that price level to some of these retail investors that are hearing about this energy behind these gaming numbers, these unprecedented demand for gaming, and the AI boom that is only in its infancy.

You look at IBM for instance, spinning off Kyndryl. Its market cap is going to continue to go down a little bit. They’re priced somewhat similarly in terms of the weighted average on the index. And you go, could Nvidia potentially be replacing someone like IBM or a Cisco? And those are questions that have come up. And I think if that was to happen, this split could end up being a pretty big catalyst.

Daniel another thing a lot of investors flagged is the growth they saw in crypto mining chips. $155 million in revenue, but of course, those investors who have been long on Nvidia know that two years ago that led to a huge downfall in one of their quarters, sort of pegged to the crypto trade.

So you know, number one, how much strength is there in this business? And should there be a concern about how much of that business could be tied to the swings that we’re seeing, just given that volatility is inevitable in the space?

Absolutely. If you look at the OEM number, you’d see it almost doubled or jumped about double somewhere in the 300 million range for this quarter. And a lot of that was related to their CMP, the crypto mining product, which was somewhat recently announced.

And also you saw the gaming jump, because of some of the SKUs in the RTX family that the low hash rate. They basically took gaming GPUs and said we’re going to make these not usable for crypto miners. We’re going to push them in the direction of our CMP products.

For Nvidia it’s really about the Ethereum boom, because that’s what they’re CMP products are really focused on. We saw Bitcoin move over from the GPU to the ASIC. And that changed, as you mentioned, the trajectory of this business.

I think it’s a little more of a cyclical business, it’s something to watch. But you’re talking about a company that’s, that’s projecting $600 million in growth in the next quarter. And that’s on top of these record-after-record-after-record quarters. So I think we’ll see some cyclicality there.

But if the robust growth remains in the gaming and then the data center businesses, I think that type of variability that you might see slight volatility in the crypto space, isn’t going to be a big impact. And also if automotive starts to come back, we know how that industry as a whole has been impacted. Automotive has not been a big growth engine for Nvidia, but there were some wins mentioned on the call, there’s some steam some growing confidence in the longer term trajectory. And if that number gets back to a little bit of a healthier growth, it could offset some of the slowness that may come with cyclicality in crypto.

You mentioned the automotive space there, and it’s, it’s a big piece of what we’ve been talking about, chips wide in terms of the shortage. And the Financial Times reporting that Tesla’s going to be paying in advance to secure the materials that they need for their production there, in the wake of that shortage. I mean, when you step back and look at the space if Nvidia’s not necessarily a large player there I mean, how do you gauge how these companies are navigating the chip shortages? Ans which one’s doing the best job to make sure they can meet demand?

I mean planning has had a huge impact on all the companies. The ones that had the biggest issues with being able to meet supply were ones that immediately started to cut forecasts upon the onset of the pandemic. Certain companies were able to get back on track more quickly, and able to put orders in, and able to meet supply.

We’re seeing the leading edge– for instance, companies like Nvidia and AMD– not necessarily seeing these big impacts Qualcomm also. While you’re hearing in their earnings calls are some issues with supply, and if there was more supply the numbers could be even better, they’re hitting the numbers.

But we’re seeing $0.30 PMIC chips holding up $300 Chromebooks. So we’re seeing PC volumes at the low end, some of the older process technologies. And this is similar in the automotive space, we’re seeing very inexpensive chips, some are a few bucks that are holding up an entire supply chain, holding up manufacturing facilities. And we’ve heard about shutdowns around the US and around the world that have been– that have impacted these companies.

So getting back to managing is getting back to forecasts. Of course, we’re hearing about the infrastructure and investments, on shoring more chip supply. And of course, expanding the, the manufacturing of some of these older process nodes that are really holding up a lot of manufacturing.

A lot of those discussions though, around how to shore up the supply, certainly going to take a little longer. So, so back to Zack’s point about that piece on what Tesla specifically is doing to try and secure the materials, also potentially looking at buying up one of the factories so they can make sure those chip supplies remain in place. Is that something that you’re hearing from other companies as well? Is part of the consideration on how much longer this could drag on, and how they try to alleviate some of the shortage?

I think companies that have the ability and the resources to up-supply, increased manufacturing, are all putting those types of things in consideration. Some of the chip makers, you’re hearing about Micron are looking at adding capacity manufacturing here. Intel had their IDM 2.0 strategy, planning some significant on shoring and manufacturing additional facility. Samsung looking to build more. I mean, Tesla’s resources, capitalization gives it some flexibility to potentially pull forward.

Of course, we see many companies, and many industries do, do hedging on supply. I mean, look it’s even happening right now in lumber, right? For, for building homes. If you could pull forward and have better demand planning you can, of course, make better investments, you buy more early, and you secure your longer term.

And of course, that was kind of my point, is the companies that were quickly, able to see the trends related to the pandemic. Things like smartphones and PCs, and we’re able to get their supply on track, pulled forward, got to work with the fabrication overseas, didn’t see the lull that other industries did when they stopped manufacturing for a period of time. Then they ended up in the back of the line with some of these overseas fads.

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