NVIDIA's shares took off on Thursday, August 6th, following the announcement of its second quarter results, which ended on July 26. By the end of the day NVIDIA's shares had surged 9.7%, and nearly 2% over the year, which does not sound fantastic, however, when compared to the 11.6% fall in the Dow jones US chipmakers index NVIDIA's performance this year has been solid.
The jump in NVIDIA's share price is largely attributable to their quarterly results beating investors' expectations by a significant margin. NVIDIA's revenue increased 4.5% in the quarter, which starkly contrasts analysts' expectations of an 8% decrease in revenue. The company also forecasts that sales will fall in the third quarter to $1.16 – $2.0 billion, whereas analysts had expected a fall to $1.10 billion; NVIDIA's future does not appear to be as grim as investors expected, which also contributed to the rise in their share price.
The bulk of NVIDIA's income continues to come from graphics cards used in PCs. Investors lowly expectations stemmed from the fear that falling PC sales would hurt NVIDIA as it has Intel and Advanced Micro Devices (AMD), though the world's dominant graphics card vendor has seemingly avoided the same fate as their closest competitors; overall PC graphics card revenue rose 59%. This should not be surprising for those who are familiar with the enthusiast PC gaming industry, as the 900 series GeForce graphics cards, NVIDIA's latest, have largely been very well-received (the GTX 970's RAM controversy notwithstanding), as has its uber high-end GTX Titan.
That being said, perhaps the most interesting aspect of NVIDIA's quarterly earnings is the rise in revenue generated from automotive sales, which rose 76%. Though the company did not specify which chip accounted for this rise it is quite obvious that it is their latest ARM based system on a chip, the Tegra X1. The Tegra X1, the follow-up to last year's Tegra K1, which powers the Nexus 9, was announced at CES this year in an irregular fashion. Instead of showing off their latest chip in a high-end tablet as they usually do, or the upcoming NVIDIA Shield TV, the company demonstrated the chip's capabilities when utilized in a vehicle's dashboard display and self-driving car. This move perplexed many enthusiats, though the announcement of Nvidia's quarterly results puts this demo in perspective, as its chips now power eight million cars and the company is working with more than 50 companies on self-driving cars.
That being said, automotive revenue only accounts for 6.2% of Nvidia's total revenue, a far cry from the revenue generated from enthusiast PC gamers and professionals, though NVIDIA clearly sees automotive as a key revenue stream over the long-term. Some may be dismayed by this focus on the automotive industry, however, this shift in focus has certainly not hampered the Tegra X1's ability within more familiar contexts, such as the Nvidia Shield TV. The Shield TV has received rave reviews and is arguably the best device running Android TV, and quite possibly the best set top box on the market. The penetration of the Tegra X1 into the automotive industry may actually help rather than hinder NVIDIA's efforts to build ARM-based chipsets. It is no secret that NVIDIA's mobile chips capture a very small portion of the overall market. If it weren't for alternative applications, such as vehicles, NVIDIA might be forced to eventually discontinue making the Tegra line altogether, which would be bad for competition and consumers. This new revenue stream will raise the Tegra line's profitability, which will only increase NVIDIA's ability to invest in research and development in the future.