What’s new. Shares of NVDA are up 7% after hours as the company reported an intoxicating combination of faster, more profitable growth. What’s new?  Tonight’s results are further evidence of the magnitude of the opportunity ahead of Nvidia. 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, and eSports. We remain believers in the long-term Nvidia story. While shares of NVDA are up 100% over the past year (market cap of $129 billion), we think there’s further upside given Nvidia’s foundational exposure to frontier technologies.

Earnings and model recap. Nvidia reported Dec-17 revenues of $2.9B vs. Street at $2.7B (up 34% y/y), and EPS of $1.72 vs. Street at $1.16. Updated model here.

Pole position in three green field growth markets: As we’ve written about previously, gaming, datacenter, and automotive, all have open-ended growth opportunities.

1. Gaming

Nvidia’s gaming business revenue was $1.74B, up 29% y/y. This was driven by high-quality, hit games in the market, notably PlayerUnknown’s Battlegrounds (PubG), Destiny 2, Call of Duty WWII, and Star Wars Battlefront II. PubG has reached 30 million players in 9 months, two months faster than Activision’s Overwatch. It’s worth noting the new Overwatch league launched last month and recorded 10 million unique users in its first week. The success of these games is leading to both an increase in the number of GPUs sold, as well as ASPs for Nvidia.

Additionally, demand for GPUs for cryptocurrency mining has boosted Nvidia’s gaming segment results. The rise in cryptocurrency demand has contributed to historically low channel inventory levels of GPUs being reported.

Long-term, the outlook for gaming remains promising.

I’ve always believed that the video game market is going to be literally everyone. In 10-years’ time, 15-years’ time there’s going to be another billion people on earth. And those people are going to be gamers. Not to mention that, almost every single sport could be a virtual-reality sport. – Jensen Huang

Part of the upbeat guidance for the April quarter is because gaming channel inventory is at historically low levels and the company expects to fill channel inventory during the quarter.

2. Datacenter

Nvidia’s datacenter revenues were $606M, up 105% y/y. For the 7th consecutive quarter, Nvidia’s datacenter revenues saw three-digit growth.

Driving datacenter growth are investments in artificial intelligence from a broad range of companies. Nvidia commented on the earnings call that every major cloud provider, including Alibaba, Amazon, Baidu, Google, IBM, Microsoft, Oracle, and Tencent have adopted Nvidia’s Tesla V100 GPUs for training deep learning networks.

We’re in the early innings artificial intelligence and just as all companies evolved to be internet companies in the early 2000s and mobile companies in the late 2000s, they will soon evolve to be AI companies.

3. Automotive

Nvidia’s automotive revenue was $132M, up 3% y/y. Despite little growth, remains Nvidia’s biggest opportunity. On tonight’s call, Jensen Huang outlined three near-term opportunities in Automotive:

1. Nvidia’s DGX system is used to train neural networks for autonomous driving at data centers.
2. Nvidia’s DRIVE PX platform provides cars with the necessary on-board computing strength for autonomous capabilities.
3. Nvidia is reaching development agreements with major OEMs, ride-hailing companies, startups, tech companies, and many others to support their efforts in autonomy. Each project is engineering intensive, and companies rely on Nvidia for help.

Longer-term, the market for autonomous vehicles will be larger than most people think. Today, automotive accounts for 6% of revenue, and we expect it to rise to 13% by 2023. As we outlined 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. 

Transportation is a $10 trillion industry. Between cars and shuttles and buses, delivery vehicles, I mean, it’s just an extraordinary, extraordinary market. Everything that’s going to move in the future will be autonomous. – Jensen Huang

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.