NVIDIA, Ongoing Increase in Data Center Demand

[Asia Economy Reporter Eunmo Koo] NVIDIA recorded an earnings surprise in the fourth quarter of fiscal year 2020 (November 2019 to January 2020) due to strong demand in Data Center and Gaming. Despite the impact of the novel coronavirus (COVID-19) this quarter, it is expected to achieve similar results to the previous quarter thanks to increased demand in data centers.

According to KB Securities on the 16th, NVIDIA's fiscal year 2020 fourth quarter (November 2019 to January 2020) results exceeded consensus with revenue up 41% year-over-year to $3.1 billion and net income rising 67.5% to $950 million. Graphics Processing Unit (GPU) sales revenue increased 40% to $2.8 billion, outperforming market expectations as data center sales showed strong performance driven by demand for Edge Computing. The core platform, gaming revenue, also maintained strong results, increasing 56.3% to $1.5 billion following the previous quarter.

It is analyzed that Edge Cloud and Artificial Intelligence (AI) are driving data center revenue. Data center revenue rose 42.6% year-over-year to $970 million, boosted by global machine learning demand. KB Securities analyst Junseop Kim stated in a report that “Hyper scalers have resumed investments to respond to Edge Cloud and AI, leading to a rebound in results after hitting a low in the first quarter,” and added, “NVIDIA has projected that data center demand will expand due to new Edge Computing demands such as 5G, genetics, robotics, and autonomous vehicles.” Edge Computing is an architecture that processes data in clouds located close to the devices.

NVIDIA provided a revenue guidance of $3 billion. Analyst Kim said, “Despite concerns over the negative impact of COVID-19 (reflecting about a $100 million revenue decrease) in the first quarter of fiscal year 2021 (February to April 2020), continued growth in data center demand is expected to result in revenue levels similar to the fourth quarter,” and added, “The gross margin guidance was also presented at an improved level compared to the fourth quarter.”

However, risks were pointed out including the fact that demand sources are developing their own computing accelerators and potential shifts in the hegemony of information processing related to autonomous vehicles.