Summary:
NVIDIA Q3 revenue hits another record; Q4 guidance sets yet another record.
Gaming soars on tailwinds, Q4 to be even stronger; gaming notebook revenue posts 11th straight quarter of double-digit year-over-year growth, Switch revenue hits record high.
Data center Q3 revenue up 162% year over year, approaching one-third of Intel's; DPU potential market reaches $10B.
Mellanox Q3 surged 83% year over year on a Huawei pull-in; Q4 growth expected to decelerate to ~30%, causing a slight dip in data center Q4 guidance.
Insufficient capacity becomes the biggest issue, but it's an industry-wide problem.
The last of the global semiconductor trio to report, NVIDIA finally delivered, in CEO Jensen Huang's words, "full throttle." In the first year of the next-gen gaming era, the gaming supply chain has seen unprecedented prosperity. Gaming GPU leader NVIDIA naturally would not miss the chance to soar on the tailwind.
NVIDIA and AMD make history together, while Intel stands still
NVIDIA Q3 Earnings Summary:
Revenue $4.726B, up 57% year over year, up 22% sequentially, marking the second consecutive quarter of record highs.
GAAP gross margin 62.6%, down 1 ppt year over year, up 3.8 ppt sequentially, holding at historical highs.
GAAP net income $1.336B, up 49% year over year, up 115% sequentially, a record high.
Non-GAAP net income $1.834B, up 66% year over year, up 34% sequentially, marking the second consecutive quarter of record highs.
Q4 revenue guidance $4.8B, up 55% year over year, likely marking the third consecutive quarter of record highs.
NVIDIA vs AMD Quarterly Comparison (in $M)
Overall, NVIDIA's Q3 report, like AMD's, is a record-setting performance. Intel Q3 revenue fell 5%, net income plunged 29%; the contrast is stark.
Gaming soars on tailwinds, Q4 to be even stronger
NVIDIA Q3 gaming revenue was $2.271B, up 36.9% year over year, up 37.3% sequentially, exceeding the company's guidance of 25% sequential growth, setting a record high!
NVIDIA Gaming Quarterly Revenue (in $M)
First, regarding NVIDIA's own product lines, the RTX 30 flagship series has drawn an unprecedented response since its launch. To date, the cards remain in severe shortage.
Second, the PC market continues to thrive. According to Strategy Analytics, laptop shipments grew 34% year over year in Q3 2020.
The Nintendo Switch continues to sell strongly, with the full-year sales forecast raised from 19 million to 24 million units.
The results matched our expectations: the RTX 30 series became the most successful launch in NVIDIA's history; gaming laptop revenue posted double-digit year-over-year growth for an 11th consecutive quarter; and Switch revenue hit a record high.
Because demand for the RTX 30 series is exceptionally strong, capacity is fully constrained. NVIDIA expects Q4 gaming revenue to grow sequentially and set another record high.
Data center may see a changing of the guard; DPU potential market reaches $10B
NVIDIA's most critical business — data center — posted Q3 revenue of $1.9B, up 161.7% year over year and 8.4% sequentially, again reaching a record high.
NVIDIA Data Center Quarterly Revenue (in $M)
Data center has been Intel's proudest business in recent years, almost single-handedly recreating an Intel. But the good times were short-lived: against a backdrop of industry-wide data center strength this year, Intel's Q3 unexpectedly slipped into decline, and its Q4 guidance was pessimistic.
By contrast, AMD's EPYC revenue set another record, doubling year over year and growing double-digits sequentially. Yet data center GPU remains soft, showing only sequential growth — consistent with our long-standing view that AMD's data center benchmark is Intel, while data center GPU still belongs to NVIDIA.
This quarter NVIDIA's inference card T4 shipments hit a new record, and A100 has been broadly deployed across cloud hyperscalers and large-scale compute customers, now beginning to ship to vertical industries. The company expects Q4 large-scale compute revenue to grow sequentially, with explosive demand for A100 and T4 inference cards — a stark contrast to Intel's deeply pessimistic Q4 guidance. Moreover, NVIDIA's single-quarter data center revenue is already approaching one-third of Intel's.
Additionally, NVIDIA this quarter launched a DPU chip that could reshape the data center industry, dramatically improving programmability, network performance, and security while preserving compute. On the earnings call, Jensen Huang said the DPU TAM is around $10B, on par with the HPC TAM.
In our earlier piece "Futu Review | Earnings Slap Intel, Strong Xilinx Acquisition Puts AMD on a New Journey," we wrote: A few years ago, data center rebuilt Intel. Now, NVIDIA and AMD are formally counterattacking the incumbent Intel, carving out an independent data center narrative. The tech world is that ruthless.
Mellanox Q3 rush shipments to Huawei weigh on data center Q4 guidance
Beyond sustained AI demand, the data center networking market also shone this year. In October, Marvell acquired networking chip company Inphi for roughly $10B. NVIDIA's $6.9B acquisition of Mellanox from Intel a year ago proved its foresight.
Mellanox, the networking chip company NVIDIA acquired, showcased its synergies fully in Q2, and Q3 was even more striking.
Per the earnings call, Mellanox Q3 revenue was approximately $600M, up 83% year over year, again a record high.
However, part of that growth came from a Q3 rush to ship to Huawei, so Q4 revenue will face a significant decline, though management guided for continued year-over-year growth of 30%+. Because of Mellanox, NVIDIA's Q4 data center guidance calls for a slight sequential decline, which pressured the stock after hours. There is no need for pessimism: NVIDIA stated that its compute business can still grow sequentially.
Capacity constraints become the biggest issue, but also an industry-wide one
This year the pandemic created unprecedented supply chain challenges, while gaming and AI enjoyed historic tailwinds. NVIDIA's RTX 30 series and A100 series face unprecedented capacity constraints; the company officially says it will take months for supply to catch up. And NVIDIA still has a slate of unlaunched products, most importantly the RTX 30 mainstream and laptop parts.
Of course, NVIDIA is not the only one short on supply. Neighbor AMD is executing an epic full-line refresh amid a once-in-seven-years game console cycle, and even draining TSMC 7nm capacity cannot meet demand.
Long term, neither is a problem. After the pandemic, data center will set sail again. In the near future, we may witness data center formally enter the NVIDIA era.