Nvidia's Third-Quarter Revenues Rise Due to High Data Center Demand

Chip designer and computing giant Nvidia (NASDAQ:NVDA) Corp exceeded third-quarter revenue expectations on Wednesday due to healthy demand in its data center business in the wake of growing cloud adoption.

Data center revenue climbed 31% year-over-year during the third quarter, but gaming revenue plummeted 51% year-over-year. Nvidia's shares increased by 1% in after-hours trading.

Cloud firms increasingly utilize Nvidia processors in their systems. The firm is cooperating with Microsoft Corporation (NASDAQ:MSFT) to construct a "large" cloud-based artificial intelligence computer.

In an October note, stockbroker Jefferies estimated that Nvidia's market share of so-called accelerator chips within the infrastructure of the world's six major clouds climbed to 85 percent as of August.

While U.S. export restrictions have been a cause for worry, Nvidia's production of the A800, a scaled-down version of the A100 that complies with the most recent export control laws, has mitigated the financial effect.

And Nvidia's chief financial officer, Colette Kress, noted that while export restrictions had an impact on revenue during the third quarter, the decline was "roughly offset" by alternative product sales into China.

"The U.S. Department of Commerce's export embargo benefited Nvidia as Chinese clients began stockpiling its Datacenter GPUs," said Kinngai Chan of Summit Insights Group, who upgraded the stock from "hold" to "buy."

When asked if the A800 chip also met the spirit of China's export restrictions, Nvidia's chief executive Jensen Huang responded, "it meets both the text and spirit of the test."

Officials from the chip sector have questioned whether Nvidia has reviewed the adjustments with the Commerce Department. Nvidia had previously declined to comment on this subject.

Gaming, a traditionally important income generator for Nvidia, was badly impacted by weak consumer demand and a change in how Ethereum digital currency is created.

"This may have contributed to increased aftermarket sales of our GPUs in some regions, which may have impacted demand for some of our low-end products," Kress stated.

Nvidia GPU processors have been in great demand for crypto currency mining, but a drop in the crypto market is diminishing demand. CEO Huang remarked that he does not expect blockchain to play a major part in the company's future.

Adjusted revenues for the quarter ended on October 30 amounted to $5.93 billion. The average revenue forecast by analysts, according to Refinitiv data, was $5.77 billion.

Nvidia anticipates sales for the current quarter of $6 billion, plus or minus 2%, compared to the consensus estimate of $6.09 billion.