Nvidia Discovers That Life at the Top Can Be Tricky

Nvidia Corp. (NASDAQ: NVDA) reported fiscal 2021 second-quarter results after markets closed on Wednesday. For the quarter the chipmaker reported adjusted diluted earnings per share (EPS) of $2.18 and $3.87 billion in revenues. In the same period a year ago, Nvidia reported EPS of $1.24 on revenue of $2.58 billion. Second-quarter results compare to the consensus estimates for EPS of $1.97 and $3.65 billion in revenue.

For the first time in the company’s history, data center revenue topped the company’s venerable gaming business. Including a full three-month contribution from Mellanox, data center revenue totaled $1.75 billion in the quarter compared to gaming revenue of $1.65 billion in gaming revenue.

Revenue in the data center was up 54% sequentially and up 167% year over year. While Mellanox likely did not contribute all that growth, those numbers could have been much lower without the Israel-based company’s networking technology.

Adjusted gross margin was up slightly sequentially and by nearly 6% year over year. Adjusted operating income rose by 26% sequentially and 89% year over year while net income rose 22% quarter-over-quarter and 79% year over year.

For the gaming division, revenue was up 24% sequentially and 22% year over year. The best is yet to come for gaming, though, as the company gets ready to launch its Ampere videogame chip on September 1. Both Sony and Microsoft will be using the new chip in upgrades to the PlayStation and the Xbox, and both are expected to sell well during the holiday season. Neither company has had a major upgrade in four years and if schools and colleges are not scheduled to reopen fully by January, sales of video consoles could soar.

Nvidia did not provide guidance but consensus analysts estimates call for third fiscal quarter EPS of $2.17 on sales of $3.97 billion. For the full year, analysts are looking for EPS of $8.14 and revenue of $14.69 billion.

The earnings beat was not enough of a surprise to encourage investors to open their wallets. It’s hard to see how anyone would want to sell the stock though. In the past year, Nvidia shares have added more than 200% and doubled in just the last quarter. Obviously that can’t go on forever, but on a percentage basis, Nvidia stock now trades at about the same growth rate as AMD stock was growing last November. Since then, AMD stock has risen by nearly 300% and Nvidia has jumped by about twice that percentage.

Nvidia will get some help from its contract chipmaker, Taiwan Semiconductor Manufacturing, which has stopped making chips for Huawei, opening up more capacity for Nvidia and its Ampere processor.

Nvidia stock traded down about 0.4% in Wednesday’s after-hours market at $483.74. The stock trades in a 52-week range of $159.00 to $499.84 and about 12% above its consensus price target of $431.60. The company pays a modest dividend yield of 0.13%. With growth like Nvidia has seen over the past few years, complaints about the dividend have not surfaced. They will sometime, but not this year.