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How Deep Learning Drove NVIDIA’s Revenue in Fiscal 1Q17

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NVIDIA beats analysts’ estimates

In the previous part of the series, we saw that NVIDIA (NVDA) outperformed the semiconductor industry in fiscal 1Q17 by diversifying in the high-growth gaming, professional visualization, data center, and automotive spaces.

Generally, the first two quarters are slow for the company as seasonal strength from gaming fades away. However, fiscal 1Q17 brought strong growth from the data center segment, which helped the company to report revenue and profits that beat analysts’ estimates.

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Deep learning drives NVIDIA’s revenue

In fiscal 1Q17, NVIDIA’s revenue rose 13% YoY (year-over-year) to $1.3 billion, beating analysts’ consensus estimate of $1.27 billion and its own guidance of $1.28 billion. Its revenue was driven by 63% YoY growth in data center revenue.

In contrast, Intel (INTC) reported only 9% YoY growth in the same segment. Such a large difference shows the increasing adoption of deep learning technology by various companies such as Google (GOOG), Amazon (AMZN), and Barclays.

On a sequential basis, NVIDIA’s revenue fell 7% in fiscal 1Q17 as growth in gaming, automotive, and professional visualization slowed due to seasonal weakness. Rival Advanced Micro Devices (AMD) also reported seasonal weakness in the semi-custom segment, which caters to game consoles.

Profitability

On a non-GAAP (generally accepted accounting principles) basis, NVIDIA’s gross margin rose from 56.9% in fiscal 1Q16 to 58.6% in fiscal 1Q17, and its operating margin rose from 20% to 24.7% during the same period. The company’s margins improved due to its leverage and scale approach, in which it leverages the same architecture and scales the technology to cater to other markets.

The company recently launched its much-awaited Pascal architecture, and it will leverage this architecture to scale in the gaming, virtual reality, and data center spaces. We’ll look into the new Pascal architecture in the coming few parts of this series.

The PowerShares QQQ Trust, Series 1 ETF (QQQ) has exposure to technology stocks, including 6.7% in AMZN, 2.8% in INTC, and 0.43% n NVDA.

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