All three U.S. chip giants—NVIDIA, AMD, Intel—have reported. Despite market volatility, semiconductors remain the highest-conviction sector, and the supercycle continues. Among the three, Intel remains in a slump, AMD is surging, and NVIDIA is unfathomable.
As the most promising company in semiconductors, indeed in tech, NVIDIA's Q2 earnings were characteristically stellar. Though they deviated slightly from yesterday's Preview, they still set records.
NVIDIA Q2 revenue $6.51B, up 68% year over year, a fifth consecutive quarterly record. GAAP net income $2.37B, up 282% year over year, a fourth consecutive quarterly record. Non-GAAP net income $2.62B, up 92% year over year, a fifth consecutive quarterly record.
The biggest variance from guidance was CMP mining cards: NVIDIA had guided $400M in revenue, but actual was only $266M. CMP weakness is actually positive, and the company guided Q3 CMP revenue to be negligible. This quarter's "metaverse" business—professional visualization—revenue hit $519M, up 156% year over year, a record. Automotive has yet to ramp.
Interestingly, even as AMD claimed the Philadelphia Semiconductor Index growth crown for two straight quarters, the absolute revenue gap between AMD and NVIDIA keeps widening.
AI Runway Is Limitless!
Data Center Revenue Records for Seventh Straight Quarter
Although NVIDIA's data center business has scale, many still see it as a gaming GPU company. In fact, AI-driven data center is where NVIDIA's true value lies.
NVIDIA data center Q2 revenue $2.37B, up 35% year over year. Though slightly below our $2.66B estimate, it marked a seventh consecutive quarterly record.
NVIDIA Data Center Quarterly Revenue Sets Records for 7th Consecutive Quarter
Combining Intel and AMD results, we previously argued AMD's cloud business formed a clear seesaw with Intel, partly benefiting from attachment to NVIDIA DGX shipments. That appears confirmed: cloud and hyperscale revenue hit records. Vertical demand is strong, inference card revenue doubled year over year to a new record. In supercomputing, 342 of the Top500 use NVIDIA, and 8 of the Top10.
Notably, DGX SuperPOD is now offered as a SaaS service, and the Enterprise Software suite has enormous future potential.
Gaming Demand Explodes Across the Board
Revenue Records for Fourth Straight Quarter
We previously noted AMD's notebook revenue had set records for seven straight quarters, Q2 total PC revenue a record, and share up for five straight quarters. But AMD had little notebook discrete GPU shipment in Q2, while NVIDIA held a near-monopoly in notebook discrete GPUs. We conservatively estimated NVIDIA Q2 gaming revenue near $2.9B, up 75% year over year.
Actual gaming revenue was $3.06B, breaking $3B for the first time, up 85% year over year, a fourth consecutive quarterly record. Huang said gaming demand exploded across the board this quarter—desktop, notebook, and even cloud gaming.
NVIDIA Gaming Revenue Records for Fourth Straight Quarter
Skeptics may question gaming sustainability, but Huang has stressed that RTX ray-tracing penetration in the GeForce installed base is only 20%, implying 80% of existing users are potential upgraders.
Second-Half Guidance Beats Expectations!
Management Confident on Arm Acquisition
On the call, NVIDIA reiterated confidence in closing the Arm deal, though it may take longer than the expected 18 months. NVIDIA has done extensive work to promote Arm in data center, and Arm's Q2 revenue also hit a record. We remain convinced only NVIDIA can save Arm.
Yesterday we noted the key to watch in this report was the second-half outlook for data center and gaming.
All three vendors are bullish on data center for the second half; the divergence is in PC. Intel expects PC to decline sequentially, AMD guides for at least flat sequentially. NVIDIA guides for continued sequential growth!
Most encouraging: NVIDIA guided Q3 revenue of $6.8B, a sixth consecutive quarterly record. Moreover, data center, gaming, professional visualization, and automotive are all expected to grow sequentially, with data center contributing the largest increment.
NVIDIA: The Microsoft of Semiconductors
On the call, the first question came from BofA's Vivek Arya, who observed NVIDIA is increasingly resembling a software company and wondered how to model its future valuation. In fact, NVIDIA's software ambition began with CUDA, and the Arm acquisition is part of that.
Looking ahead, we believe 2023 will be the year NVIDIA truly joins Apple and Microsoft in stature, when its metaverse professional visualization, automotive, and data center CPU/DPU businesses ramp meaningfully, and we may witness the birth of the semiconductor industry's "Microsoft."
Closing with a quote from Huang on today's earnings call.
At the highest level, the important thing to realize is that artificial intelligence is the single greatest technology force that the computer industry has ever seen and potentially the world has ever seen.