What’s working for NVIDIA?
NVIDIA (NVDA) is leading the world to GPU (graphics processing unit) accelerated computing as CPU (central processing unit) computing reaches its limit. Right now, the gaming and data center markets are its main growth drivers. The company expects growth to pick up in the ray tracing, accelerate computing, and autonomous machine markets in the next few years. It has a first-mover advantage in all three markets.
On NVIDIA’s fiscal 2020 first-quarter earnings call, its CEO, Jensen Huang, stated that ray tracing is the future of gaming and digital design and that the company’s RTX ray tracing GPU is seeing growing adoption from game publishers and movie studios.
He said he’s also seeing the growing adoption of NVIDIA’s scalable accelerated computing platform. He added that the company’s future growth will be driven by autonomous machines, which will use NVIDIA’s end-to-end platform from the data center to the edge computing spaces. NVIDIA will support its platform by acquiring end-to-end InfiniBand and Ethernet interconnect provider Mellanox by the end of the year.
What’s not working for NVIDIA?
While NVIDIA’s long-term growth opportunity looks bright, it’s facing short-term headwinds amid slowing demand, especially in the hyperscale data center space. The trade war between the United States and China has heated up as both countries have increased their tariff rates to as high as 25% on each other’s imports. The trade tensions have seen many data centers buy ahead of the tariffs. The rising trade tensions could deter data centers from buying further until the tariffs ease.
Moreover, the end of cryptocurrency demand created excess GPU inventory in the channel. This excess inventory is expected to be absorbed in the second quarter.
The above-mentioned market trends have affected NVIDIA’s revenue. It reported its first YoY (year-over-year) revenue decline in more than three years in the fourth quarter of fiscal 2019, and this decline is likely to continue in the next few quarters. The company reported a second straight quarter of YoY revenue decline of 31% in the first quarter of fiscal 2020 due to a pause in data center spending and the slow ramp-up of gaming laptops because of Intel’s CPU shortage.