• Nvidia reported April earnings after the close today. Shares of NVDA are down 3% in after-hours trading given the company missed Datacenter revenue by a fraction of a percent. High growth stories have high bars to clear, and the company failed to exceed expectations in the Datacenter segment. Keep in mind, shares of NVDA have appreciated 20% in the past month.
• That said, the Nvidia story is intact, and remains one of the best-positioned tech names for the next decade, as its products are a foundational part of the future of technology, based on their use in data centers, autonomous vehicles, virtual and augmented reality platforms, cryptocurrency mining, gaming and esports.

What’s New? First, we’ll start with the bad news. Nvidia’s Datacenter growth has continued to slow, growing at 71% y/y vs. 186% y/y growth a year ago. Analysts expected Nvidia’s Datacenter to reach $703M in Q1, while it only reported $701M in the segment.

In addition, Nvidia offered more clarity around the impact that cryptocurrency mining is having on its business. Nvidia’s OEM and IP business grew 148% y/y due to the addition of cryptocurrency mining specific products. Despite stronger than anticipated impact from cryptocurrency mining, Nvidia does not expect this tailwind to continue. Nvidia shared that it believes OEM and IP to be 1/3 it’s Q1 level going forward.

Our GPU prices are normalizing, allowing gamers who had been priced out of the market to get their hands on one. Cryptocurrency demand was stronger than expected but we were able to fill it with crypto-specific GPUs. – Nvidia CFO Colette Kress

Earnings and model recap. Nvidia reported Apr-18 revenues of $3.21B vs. Street at $2.89B (up 66% y/y), and EPS of $2.05 vs. Street at $1.46. Updated model here.

What’s Next? We are still believers in the Nvidia story and want to reiterate our belief in three key catalysts for Nvidia’s growth.

1. Gaming – Demand for core gaming business products remains strong. Tonight’s call highlighted the impact that the Battle Royale game mode has had on the gaming market.

Bottom line, Fortnite is a home run, PUBG is a home run… Battle Royale is incredibly social and sticky. More gamers play, and more of their friends join. It’s a positive feedback system. – Jensen Huang

Gaming demand remains strong for Nvidia. Jensen shared positive feelings that Nvidia would be able to continue to fill channel inventory of graphics cards, helping normalize the price for gamers.

2. Datacenter – Companies are adopting artificial intelligence in order to remain competitive. Nvidia’s datacenter business saw triple-digit growth for the seven consecutive quarters, and 71% in the April quarter. A big part of this growth is due to the expanding use of artificial intelligence by companies, specifically deep learning. On tonight’s call, Jensen expressed his pleasure with Nvidia’s Volta architecture, with it being the first GPU designed specifically for deep learning. Volta architecture chips shipped to cloud customers in the last quarter. While the Volta chips have been used internally for qualification, for the most part, they are beginning to open up to external cloud customers.

3. Automotive – The market for autonomous vehicles will be bigger than most people think. Nvidia’s opportunity in the automotive space is bigger than many anticipate. As stated in our Auto Outlook 2040, we expect 90% of vehicles on the road in 2040 to have level 4 or 5 automation, which would require a platform such as Nvidia’s DRIVE PX. On tonight’s call, Jensen Huang re-iterated his belief that everything that moves will be autonomous, or have autonomous capabilities. This includes cars, taxis, agriculture, and pizza delivery equipment. Jensen shared that he anticipates driverless taxis to go to market in 2019, with autonomous cars going to market in 2020 or 2021.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.