Nvidia: Q3 Earnings and an Acquisition Investigation

By Duncan Ferris

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Nvidia's shares have found themselves in the green after strong earnings and exciting goals have overshadowed new obstacles for its acquisition of chipmaker Arm Ltd.

Nvidia (NASDAQ: NVDA) shares have been on a bit of a rollercoaster after solid earnings but discouraging acquisition news. The chipmaker’s shares dipped on Wednesday after regulators signaled they want to take a closer look at the company’s acquisition of Arm Ltd.

However, Nvidia’s strong earnings have helped the stock rise over 10% on Thursday, with the company’s shares firmly in the green in late-morning trading.

What did Nvidia’s earnings show?

The company achieved record revenue of $7.10bn, up 50% from a year earlier and ahead of analysts’ expectations of $6.82bn.

Additionally, adjusted earnings per share came in at $1.17. This topped expectations of $1.11 and amounted to a 60% year over year increase.

In terms of guidance, Nvidia said it expected further revenue growth in the ongoing quarter. The company projected revenue would come in at $7.4bn for the three-month period, well above analyst expectations of $6.86bn.

How did Nvidia beat analyst projections?

Nvidia’s revenue growth was driven by several business segments. Data centre revenue increased by 55% to $2.94bn and is increasingly becoming the dominant segment of the company’s business. This growth has in turn been driven by more demand for the firm’s GPUs from major cloud providers.

Additionally, third-quarter gaming revenue came in at a record $3.22bn, up 42% from a year earlier and up 5% from the previous quarter amid continued popularity of its GeForce graphics processors.

Chip shortages have continued in the period, meaning that many of the company’s chips have been snapped up by bots and other sellers who are looking to sell them on at well above retail value. Much of this is fuelled by demand from cryptocurrency miners, but Nvidia has now updated its graphics cards to prevent them from being used for mining.

Finally, revenue from professional visualization and automotive segments increased by 144% to $577m and 8% to $135m respectively.

Nvidia founder and CEO, Jensen Huang, commented: “The third quarter was outstanding, with record revenue. Demand for NVIDIA AI is surging, driven by hyperscale and cloud scale-out, and broadening adoption by more than 25,000 companies.

“NVIDIA RTX has reinvented computer graphics with ray tracing and AI, and is the ideal upgrade for the large, growing market of gamers and creators, as well as designers and professionals building home workstations.” 

Nvidia founder and CEO Jensen Huang

What is going on with Nvidia’s Arm acquisition?

The UK’s Competition and Markets Authority (CMA) wants to examine the company’s $40bn takeover of British chip designer Arm. The regulator will be carrying out a phase two investigation, after its initial look into the acquisition found "significant competition concerns".

The chief executive of the CMA, Andrea Coscelli, explained that the deal could limit the company’s competition in their attempts to gain “access to key technologies”.

Arm designs software and semiconductors, licensing out schematics to other chip makers and technology firms. However, the concern is that, if Nvidia gains control of the company, it can easily limit this licensing to its direct competitors. With chip shortages already a big issue, this could pass on another major headache to tech companies and consumers.

In addition to this holdup in the UK, the acquisition will also have an ongoing investigation from the European Union and further regulatory scrutiny in the US and China.

Any blocking of the deal would be a blow to Nvidia, but the company’s strong financials and solid planning mean that it is quite capable of continuing to shine regardless.

Nvidia's big plans

Nvidia is aiming to become a key player in the metaverse

Looking ahead, Huang has positioned the company to be a major contributor to the metaverse. An example of the sort of contribution the company can make is its Omniverse Enterprise, which he says can be used to create virtual characters, interpret speech and create new 3D worlds.

Speaking about Nvidia GTC, the company’s global AI conference, Huang commented: “Omniverse was a major theme at GTC. We showed what is possible when we can jump into virtual worlds.

“Omniverse will be used from collaborative design, customer service avatars and video conferencing, to digital twins of factories, processing plants, even entire cities. Omniverse brings together NVIDIA’s expertise in AI, simulation, graphics and computing infrastructure. This is the tip of the iceberg of what’s to come.”

Additionally, Huang said Nvidia’s products have applications in supply-chain logistics, cybersecurity, natural language processing, quantum computing research, robotics, self-driving cars, climate science and digital biology.

The company’s share price has climbed by over 140% across the year to date. With healthy financials and ambitious plans to stay at the cutting edge of metaverse and AI developments, the company looks like a great choice for savvy investors.

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In this article:

Topics:
Semiconductors
Technology Hardware, Storage and Peripherals
Quarterly Earnings
Industries:
Information Technology

Author: Duncan Ferris

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.