By Wallace Witkowski, MarketWatch
Nvidia Corp. shares rallied in the extended session Thursday after the chip maker’s data-center sales and outlook topped Wall Street estimates while returning to revenue growth.
Outsize data-center gains in the fourth quarter made up for a small shortfall in gaming sales. Nvidia reported a 56% gain in gaming sales from a year ago to $1.49 billion, while analysts had forecast $1.52 billion, versus a 43% surge in data-center sales to a record $968 million, more than $140 million above the Wall Street consensus of $825.8 million.
Nvidia /zigman2/quotes/200467500/composite NVDA -4.52% shares increased 5.2% in after-hours trading, after closing down 0.7% Thursday at $270.78. Over the past 12 months, Nvidia shares have gained 77%. In comparison, the S&P 500 index /zigman2/quotes/210599714/realtime SPX -1.51% has gained 23%, the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -1.53% has grown 31%, and the PHLX Semiconductor Index /zigman2/quotes/210598361/realtime SOX -2.14% has increased 46% in that time.
“The primary driver for growth is AI,” Nvidia Chief Executive Jensen Huang said about data-center sales on a conference call Thursday. Huang told analysts that AI is being driven by four areas: recommendation, which is a more personalized version of search; inference, where a system applies rules to a database to deduce new information; public cloud and vertical industries; and edge AI, or running AI processing on a device without a cloud connection.
The fourth quarter proved to be a big one for data-center sales as cloud providers and hyperscalers opened up their capital-expenditure pocketbooks. This past earnings season, Intel Corp. /zigman2/quotes/203649727/composite INTC -0.40% reported $800 million more in data-center sales than Wall Street had expected, while Advanced Micro Devices Inc. /zigman2/quotes/208144392/composite AMD -4.27% also reported strong growth in data-center sales even though specifics were masked as poor console sales dragged down its combined reporting segment.
Nvidia reported fourth-quarter net income of $950 million, or $1.53 a share, compared with $567 million, or 92 cents a share, in the year-ago period. Adjusted earnings were $1.89 a share. Total revenue rose to $3.11 billion for its first gain in four quarters, compared with $2.21 billion in the year-ago quarter.
Analysts surveyed by FactSet had forecast earnings of $1.67 a share on revenue of $2.96 billion.
“Nvidia had an incredible quarter with record revenue in many places,” said Patrick Moorhead, principal analyst at Moor Insights & Strategy. “Key drivers were PC gaming, driven by RTX and SUPER lines; data-center, driven by cloud giants with machine learning; and even growth in professional visualization.”
The company expects revenue of $2.94 billion to $3.06 billion for the first quarter, while analysts had forecast revenue of $2.85 billion. Nvidia said its revenue outlook accounts for a $100 million reduction from original estimates due to expected headwinds from the COVID-19 coronavirus outbreak.
On the call, Chief Financial Officer Colette Kress said it’s still too early to foresee the impact from COVID-19 but the figure was calculated by splitting supply challenges and overall demand against both gaming and data-center sales. China accounts for about 30% of gaming sales and the outbreak could depress gaming sales by low double-digits sequentially, Kress said, while data-center sales from China tend to vary from quarter to quarter and are more difficult to determine.
Of the 39 analysts who cover Nvidia, 28 have buy or overweight ratings, nine have hold ratings and two have sell or underweight ratings, with an average price target of $262.41.