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Should Investors Worry about NVIDIA’s Revenue Growth?

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NVIDIA’s revenue growth trends

NVIDIA (NVDA), which has been reporting double-digit revenue growth for the past 12 quarters, earns more than 85% of its revenue from four platforms: gaming, data centers, professional visualization, and automotive. All four platforms have been reaching new revenue growth highs, both sequentially and YoY (year-over-year).

In fiscal Q2 2019, NVIDIA’s revenue rose 40% YoY but fell 3% sequentially to $3.12 billion, beating analysts’ estimate of $3.1 billion. While the four platforms’ collective revenue rose more than 50% YoY, OEM (original equipment manufacturer) and IP (intellectual property) revenue fell 54% YoY due to weak crypto-related revenue. Meanwhile, rival Advanced Micro Devices’ (AMD) revenue rose 52.9% YoY due to strength in the PC and server processor markets.

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Fiscal Q3 2019 revenue guidance

While NVIDIA’s fiscal Q2 2019 revenue growth was in line with expectations, its fiscal Q3 2019 revenue guidance concerned investors. As shown in the above graph, NVIDIA expects its revenue to grow 23% YoY and 4% sequentially to $3.25 billion in fiscal Q3 2019, undershooting analysts’ estimate of $3.34 billion. This guidance excludes crypto-related revenue, which the company expects to be immaterial.

Fiscal Q3 is typically a strong quarter for the company, as back-to-school sales pick up and the company reports a full quarter of sales of its new GPUs (graphics processing units). NVIDIA plans to launch its next-generation Turing-based gaming GPU by September 20. One reason for the weak fiscal Q3 2019 revenue guidance is the transition to next-generation gaming GPUs—when the company launches new GPUs, gamers tend to delay their purchases.

Even if NVIDIA reports slightly lower revenue growth in fiscal Q3 2019, it might report strong growth in fiscal Q4 2019, which would include a full quarter of sales of its Turing-based gaming GPUs and the initial sales of its Turing-based workstation GPUs. Next, we’ll discuss how the transition to Turing architecture has affected NVIDIA’s profitability.

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