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NVIDIA Corporation Stomped Second-Quarter Guidance Targets

Graphics chip designer NVIDIA (NASDAQ: NVDA) reported earnings on Thursday night, covering the second quarter of fiscal year 2018. Data center products showed screaming sales growth while automotive sales barely budged. Overall, revenue jumped 56% higher year over year and earnings more than doubled.

Here's a closer look at NVIDIA's second-quarter results.

NVIDIA's second-quarter results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Revenue

$2.2 billion

$1.4 billion

56%

Net income

$583 million

$261 million

123%

GAAP earnings per share (diluted)

$0.92

$0.41

124%

Data source: NVIDIA.

What happened with NVIDIA this quarter?

These results ran roughshod over NVIDIA's own guidance for the second quarter, which called for GAAP earnings of roughly $0.68 per share and sales of approximately $1.95 billion.

  • Slicing up NVIDIA's results by reportable segments, sales of graphics processing units, or GPUs, rose 59% year over year to $1.9 billion. The arm-based system-on-a-chip processor line known as Tegra doubled its second-quarter revenue to $333 million.
  • Counting by end markets instead, gaming-related sales increased 52% to $1.2 billion. Data center products recorded 175% growth, landing at $416 million. The slowest-growing market this time was automotive computing, where year-over-year sales growth stopped at 19% for a $142 million total.
  • A long-running stream of licensing revenues from Intel (NASDAQ: INTC) ended in the first quarter. The $1.5 billion licensing deal started with the settlement of crosswise patent infringement lawsuits between the two companies in 2011, and the court-ordered flow of Intel payments has now stopped with a final payment of $43 million in NVIDIA's first quarter. The loss of that high-margin deal is putting modest pressure on NVIDIA's profit margins across the board.

What management had to say

In a prepared statement, NVIDIA founder and CEO Jensen Huang highlighted strong market interest in NVIDIA's data center products. Above all else, he sees NVIDIA's products as a perfect fit for the artificial intelligence market.

"Nearly every industry and company is awakening to the power of AI," Huang said. "Our new Volta GPU, the most complex processor ever built, delivers a 100-fold speedup for deep learning beyond our best GPU of four years ago. This quarter, we shipped Volta in volume to leading AI customers. This is the era of AI, and the NVIDIA GPU has become its brain. We have incredible opportunities ahead of us."

Image source: NVIDIA.

Looking ahead

For the third quarter, NVIDIA expects sales to rise roughly 18% year over year, landing near $2.35 billion. Using the midpoints of management's guidance for gross margins, operating expenses, and tax rates, GAAP earnings should rise 11% to approximately $0.93 per diluted share.

Automotive computing growth may have been modest this time, but NVIDIA is going places in that important market. During the second quarter, top-tier carmakers Toyota (NYSE: TM) and Volvo Cars joined a growing group of automakers that will use the NVIDIA Drive PX platform in upcoming self-driving car projects. Volvo's NVIDIA-based vehicles should start hitting the market by the year 2021, and Toyota committed to releasing the first products of its NVIDIA agreement "in the next few years." So it's a slow-burning growth story but the automotive fuse has been lit.

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Anders Bylund owns shares of Intel. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.