Should Investors Worry about NVIDIA’s Data Center Revenue Declines?

NVIDIA’s data center revenue

After gaming, NVIDIA’s (NVDA) second largest and the fastest growing business is Data Center, which accounts for ~25% of its revenue. However, macroeconomic weakness hurt the company’s data center business and it reported its first sequential revenue decline in more than three years.

Should Investors Worry about NVIDIA’s Data Center Revenue Declines?

In the fourth quarter of fiscal 2019, NVIDIA’s data center revenue rose 12% YoY but fell 14% sequentially to $679 million. During the quarter, revenue fell by $113 million in the Data Center segment as rising economic uncertainty made customers across verticals, markets, and geographies cautious. Several customers paused their capital spending temporarily, and as a result, NVIDIA could not close its deals in January.

Intel (INTC) was also hit by a decline in data center capital spending. Its YoY revenue growth from cloud companies halved from 50% in the third quarter to 24% in the fourth quarter. However, the overall cloud capital spending in 2019 was up 70%, which led to NVIDIA’s full-year fiscal 2019 Data Center revenue rising 52% YoY to $2.93 billion. While Intel and NVIDIA experienced a slowdown in the data center market, rival Advanced Micro Devices (AMD) is showing strength.

NVIDIA versus AMD in the data center market

AMD reported record data center GPU (graphics processing unit) sales of around $100 million in the fourth quarter of 2019 as it secured design wins from Internet giants like Microsoft, Amazon, and Baidu. While AMD is winning contracts, NVIDIA is struggling to strike new deals, indicating that the former is taking market share from the latter.

AMD expects data center sales to be slow in the first quarter of 2019, but pick up in the second half of 2019 as it launches its complete portfolio of 7-nm (nanometer) data center processors including Radeon Instinct Vega GPU and Rome CPU (central processing unit). These 7-nm processors will give AMD a process node advantage over NVIDIA’s 12-nm Turing data center GPU and Intel’s 14-nm Xeon CPU.

Despite rising competition and slowing cloud spending, NVIDIA is optimistic about its data center opportunity and believes that this segment will drive future growth. We’ll look into this opportunity next.

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