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What Drove Nvidia’s Fiscal 2Q17 Earnings to New Highs?

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Nvidia’s fiscal 2Q17 earnings overview

It has become Nvidia’s (NVDA) habit of making new highs. The company reported growth when most of the semiconductor companies reported declines, and fiscal 2Q17[1. ended July 31, 2016] was no different. In fact, Nvidia broke new records in fiscal 2Q17. It reported its highest quarterly revenue growth in nearly five ears, and its operating income tripled on a YoY (year-over-year) basis.

This growth was largely driven by strong demand for deep learning and new Pascal GPUs built on TSMC’s (TSM) 16nm FinFET (Fin Field Effect Transistor) technology.

Nvidia has reported strong guidance for fiscal 3Q17 on the back of demand for its new products, further accelerated by seasonal demand. Strong earnings and even stronger guidance sent Nvidia’s stock up by 5.3% to a record high of $63.50 a day after the earnings release.

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How did Nvidia’s peers perform in the June 2016 quarter?

The June 2016 quarter was good for Nvidia’s rival Advanced Micro Devices (AMD). AMD reported its first YoY operating profit in six quarters, driven by strong demand for semi-custom chips. AMD also reported strong guidance on the back of demand for new products.

While AMD and Nvidia reported strong growth, Intel’s (INTC) growth slowed due to weakness in the data center and PC markets.

Fiscal 2Q17: An important quarter for Nvidia

Fiscal 2Q17 was a special quarter for GPU vendors Nvidia and AMD as they transitioned to an advanced node after four years. Nvidia transitioned from its 28nm (nanometer) Maxwell architecture to 16nm Pascal architecture, which is one generation ahead. The company launched Pascal-based GPUs (graphics processing units) for gaming, professional visualization, and data centers in June and July 2016 and is set to launch more Pascal GPUs in fiscal 3Q17.

Fiscal 2Q17 only includes one month of sales of the new Pascal GPUs in the Gaming segment. In this series, we’ll look at the impact of the new Pascal architecture on Nvidia’s earnings and guidance and the factors that could influence future growth.

The PowerShares QQQ ETF (QQQ) has ~11.5% holdings in semiconductor stocks, including ~3.1% in INTC and 0.64% in NVDA.

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