NVIDIA (NASDAQ:NVDA) reported strong fiscal third-quarter 2021 results after the market closed on Wednesday, Nov. 18. The graphics processing unit (GPU) specialist’s growth was driven by record revenue in its gaming and artificial intelligence (AI)-driven data center businesses.
Results on both the top and bottom lines flew by Wall Street’s consensus estimates, and fourth-quarter guidance for both revenue and adjusted earnings per share (EPS) also came in higher than analysts had been expecting.
But shares of the hot tech stock fell 2% in Wednesday’s after-hours trading session. We can probably attribute the market’s slightly negative initial reaction to some investors not being satisfied with the degree to which NVIDIA exceeded analysts’ estimates. The company’s stock is highly valued and has run-up big in 2020, so some investors (or at least short-term traders) are going to have insatiable expectations.
NVIDIA’s key numbers
| Metric | Fiscal Q3 2021 | Fiscal Q3 2020 | Change |
|---|---|---|---|
| Revenue | $4.73 billion | $3.01 billion | 57% |
| GAAP operating income | $1.40 billion | $927 million | 51% |
| GAAP net income | $1.34 billion | $899 million | 49% |
| Adjusted net income | $1.83 billion | $1.10 billion | 66% |
| GAAP earnings per share (EPS) | $2.12 | $1.45 | 46% |
| Adjusted EPS | $2.91 | $1.78 | 63% |
Colette Kress said in the CFO commentary that the company’s April acquisition of Mellanox Technologies, which makes networking equipment for data centers, contributed 13% of total company revenue. So excluding Mellanox’s contribution, revenue grew about 36% year over year.
Wall Street was looking for adjusted EPS of $2.56 on revenue of $4.41 billion, as outlined in my earnings preview. And NVIDIA had guided for adjusted EPS of $2.55 on revenue of $4.40 billion. So its results surpassed both its outlook and analysts’ expectations.
GAAP gross margin was 62.6%, down slightly from 63.6% in the year-ago quarter. Adjusted gross margin landed at 65.5%, up from 64.1% in the year-ago period.
For additional context, last quarter, NVIDIA’s year-over-year revenue and adjusted EPS growth were 50% and 76%, respectively. Organic revenue growth, which excludes the contribution from Mellanox, was about 29%.
Platform performance
| Platform | Fiscal Q3 2021 Revenue | Change YOY | Change QOQ |
|---|---|---|---|
| Gaming | $2.27 billion | 37% | 37% |
| Data center | $1.90 billion | 162% | 8% |
| Professional visualization | $236 million | (27%) | 16% |
| Automotive | $125 million | (23%) | 13% |
| OEM and IP | $194 million | 36% | 33% |
| Total | $4.73 billion | 57% | 22% |
The acquisition of Mellanox contributed approximately a third of data center revenue, Kress said. In the CFO commentary, she discussed how the COVID-19 pandemic affected demand for products within each of the four target platforms:
Our gaming and data center market platforms have benefited from stronger demand as people continue to work, learn, and play from home. In professional visualization, stronger demand for mobile workstations due to work-from-home trends was partially offset by lower demand for desktop workstations. In automotive, customers’ production volumes have largely returned to pre-COVID levels.
Kress added that the company continues to have some supply chain issues because “stronger demand globally has limited the availability of capacity and components.”
What the CEO had to say
Here’s part of what CEO Jensen Huang had to say in the earnings release:
NVIDIA is firing on all cylinders, achieving record revenues in gaming, data center and overall. The new NVIDIA GeForce RTX GPU provides our largest-ever generational leap and demand is overwhelming. NVIDIA RTX has made ray tracing the new standard in gaming.
[Outline of the company’s recent AI achievements.] We are positioning NVIDIA for the age of AI, when computing will extend from the cloud to trillions of devices.
Pending Arm acquisition
NVIDIA expects its $40 billion acquisition of leading central processing unit (CPU) chip designer Arm to close in the calendar first quarter of 2022. The good news for investors is that this transaction is expected to be immediately accretive to the company’s adjusted gross margin and adjusted EPS.
Fiscal Q4 guidance exceeded expectations
For fiscal Q4 2021, management expects revenue of $4.80 billion, representing growth of 54% year over year. It also guided (albeit indirectly, by providing a bunch of inputs) for adjusted EPS of $2.79, representing growth of 48%.
Going into the release, Wall Street had been modeling for fiscal Q4 adjusted EPS of $2.54 on revenue of $4.42 billion. So NVIDIA’s outlook easily exceeded both estimates.
A fantastic quarter
NVIDIA had a fantastic quarter, and its future continues to look bright. Long-term investors should pay no heed to the market’s slightly negative initial reaction during Wednesday’s after-hours trading session. This action was probably largely driven by short-term momentum traders.
