NVIDIA Q2 Earnings Show Strong Data Center Growth Undercut By Huge Gaming Slide

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NVIDIA’s Data Center business unit is continuing to show strong growth with surging demand for cloud AI compute resources, though other business units within the company are dragging it down currently. NVIDIA has just reported $6.70 billion in revenue for Q2 of its 2023 Fiscal Year. This is a 3% increase over Q2 FY2022, but marks a 19% decline from Q1 of this year, due largely to a decline in revenue from its Gaming GPU and professional graphics products.

The Data Center business unit posted $3.81 billion in revenue, marking an increase of 61% over last year and 1% over Q1. The company points to performance advantages in AI and machine learning, its new Quantum Optimized Device Architecture, and incorporation of its Grace Superchip in superscaled HGX compute systems with partner OEMs as drivers of this growth. Colette Kress, NVIDIA CFO, notes that Data Center demand was particularly driven by North America but the Chinese market has been more affected by economic conditions.

The company’s Automotive business unit has shown similar grown of 45% over last year, and is up 59% from Q1. NVIDIA recently announced several partners for its Drive Orin compute platform which will be used in self-driving trucks and autonomous taxis. Unfortunately, Automotive is a much smaller business unit for NVIDIA, which only represented $220 million in revenue on the quarter.

However, these strong gains were undercut by significant decline in NVIDIA's Gaming business unit. The Gaming business unit’s $2.04 billion revenue marks a drop of 33% year over year and is down 44% from last quarter. This year has been turbulent for the Gaming industry as a whole, but it has hit NVIDIA particularly hard. NVIDIA cites lower sales of Gaming products as a reflection of greater macroeconomic trends, and it expects these trends to continue into Q3.

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The Professional Visualization business unit had similarly soft results. The business unit posted $496 million in revenue, down 4% from last year and down 20% from Q1. Pro Viz has a lot staked in technologies that are driven by industrial and media creation markets, as well the metaverse, which is a fledgling opportunity. “We are navigating our supply chain transitions in a challenging macro environment and we will get through this,” said Jensen Huang, founder and CEO of NVIDIA. Huang goes on to talk about how NVIDIA’s technology is “transforming industries” and is optimistic about continued advancements in its Data Center business.

On the consumer side, Huang says “I look forward to next month’s GTC conference, where we will share new advances in RTX, as well as breakthroughs in AI and the metaverse, the next evolution of the internet. Join us.” NVIDIA is expected to announce its next generation GeForce RTX 40 series of GPUs soon. It's possible that more users than expected are holding out for NVIDIA's next gen before making an investment in a new graphics card.

Overall, NVIDIA has returned $3.44 billion to shareholders through share repurchases and cash dividends. The company plans to continue share repurchases and has $11.93 billion remaining under its repurchase authorization through December 2023.