Below Expectations Results for Nvidia

Third-quarter sales increased 21% year over year and 2% sequentially to $3.2 billion. Gaming sales fell 2% sequentially to $1.8 billion, as a seasonal decline in chips for the Nintendo Switch also served as a headwind. Data center revenue was $792 million, up 58% year over year and 4% sequentially, due to strong demand from hyperscale cloud vendors for Nvidia’s Volta GPUs. Every major hyperscale vendor utilizes Nvidia’s GPUs to accelerate the training of AI workloads, while Nvidia’s new Turing T4 cloud GPUs support the inferencing portion of AI (deploying the algorithm in the real world). Baked into our valuation assumptions is that Nvidia will continue to dominate training workloads, given the strong parallelism characteristics of GPUs that enable more efficient training on immense data sets. However, inferencing will be a larger and more fragmented market, in our view, that will feature solutions from the likes of Intel and Xilinx as well as cloud vendors themselves (that is, Google’s TPU).

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