After a GTC-driven rally, amplified by metaverse hype, NVIDIA's market cap cleared $700B, decisively overtaking TSMC to claim the global semiconductor throne.
Yet the market's prevailing perception of NVIDIA remains stuck in gaming GPUs and mining, just as many still view Microsoft as only Windows and Office. A perception gap is a good thing.
Q3 Earnings Shatter Records Again!
Full-Year Net Income Charges Toward $10B
In yesterday's 'Earnings Preview | Data Center to Set Records for 8th Straight Quarter! NVIDIA Q3 Poised for Another Blowout,' actual revenue matched our forecast, but we overestimated CMP mining chip revenue (actual $105M vs. our $155M estimate) and underestimated Data Center's explosion. Our GAAP net income forecast was optimistic, landing close to actual Non-GAAP net income.
NVIDIA Q3 revenue was $7.103B, up 50.3% year over year, the sixth consecutive quarterly record.
GAAP gross margin was 65.2%, a new record. Non-GAAP gross margin was 67%, a new record.
Operating income was $2.671B, up 91.1% year over year, the fifth consecutive quarterly record.
GAAP net income was $2.464B, up 84.4% year over year, the fifth consecutive quarterly record.
Non-GAAP net income was $2.973B, up 62.1% year over year, the sixth consecutive quarterly record!
Gaming Q3 revenue was $3.221B, up 41.8% year over year, the fifth consecutive quarterly record, as expected given severe supply-demand imbalance. GeForce Now registered users reached 14M, doubling year over year, across 80 countries. 25% of NVIDIA's installed base has upgraded to RTX GPUs, leaving substantial upgrade headroom.
Professional Visualization, buoyed by metaverse tailwinds and strong desktop and mobile workstation demand, posted Q3 revenue of $577M, up 144.5% year over year, a record for the second consecutive quarter. Omniverse subscription revenue has not yet materialized; over 700 companies are using Omniverse.
AI Runway Is Limitless!
Data Center Revenue Sets Records for 8th Consecutive Quarter
As we've noted, although NVIDIA's Data Center business has achieved scale, many still see NVIDIA as a gaming GPU company. In reality, AI-centric Data Center is where NVIDIA's true value lies.
Combined with AMD's Data Center strength — revenue doubling year over year, approaching $1B — EPYC revenue tied closely to NVIDIA has set records for six consecutive quarters, maintaining year-over-year doubling and high double-digit sequential growth. Meanwhile, AMD's Q3 cloud customer business continued the see-saw dynamic with Intel, where Intel's cloud revenue has fallen double digits year over year for four straight quarters. Hyperscaler capex continues to climb; the setup remains extremely favorable.
NVIDIA Data Center Quarterly Revenue Sets Records for 7th Consecutive Quarter
NVIDIA also delivered a Data Center beat that exceeded all Street expectations: Data Center revenue was $2.936B, up 54.5% year over year and surging 24.1% sequentially! The eighth consecutive quarterly record, representing 41.3% of Q3 total revenue.
Specifically, NVIDIA's Q3 Data Center hyperscale revenue (primarily cloud customers) doubled year over year, driven by NLP, recommendation models, and cloud computing, outpacing vertical growth. Verticals (primarily internet companies) were equally strong. Over 25,000 companies worldwide now use NVIDIA AI for inference.
In supercomputing, over 70% of the Top500 use NVIDIA chips; over 90% of new entrants use NVIDIA; 23 of the top 25 on the Green500 use NVIDIA. Supercomputing revenue share remains small, however.
This quarter NVIDIA achieved three milestones in enterprise AI adoption: establishing the NVIDIA AI Enterprise certification program, VMware support for NVIDIA AI, and global colocation leader Equinix deploying NVIDIA LaunchPad. Notably, NVIDIA said Mellanox-led networking chips remain in severe shortage; it previously cited a $10B DPU TAM.
On the earnings call, NVIDIA stated its combined CPU+GPU share in global hyperscale/vertical markets is under 10%, leaving enormous room; the near-term target is 20%+.
Optimistic Q4 Guidance
Data Center Poised for Continued High Growth Next Year
Semiconductor Q3 results were broadly solid, but the market is more focused on Q4 and next year. The three chip giants delivered starkly different scorecards: Intel continued its lackluster trend, guiding for Q4 revenue down 3% year over year excluding the NAND business; AMD expects Q4 revenue up 39% year over year, marking a sixth consecutive quarter of record highs; NVIDIA expects Q4 revenue up 48% year over year, marking a seventh consecutive quarter of record highs.
NVIDIA expects its data center and gaming businesses to continue growing sequentially in Q4, exceeding consensus. On that basis, full-year revenue of $26.6B is a lock, GAAP net income is on track to approach $10B, and non-GAAP net income could challenge $11B. Interestingly, even as AMD was crowned the semiconductor growth king, the revenue gap between NVIDIA and AMD keeps setting new highs.
NVIDIA expects cloud vendors' AI expansion plans to become even more aggressive next year. A detail also signals NVIDIA's strong confidence in next year's results: the company recorded $1.6B in prepaid supply commitments this quarter, explained as long-term supply agreements totaling $3.4B to secure future capacity. It is almost certainly aimed at locking down TSMC 5nm/3nm allocations.
Jensen Huang boasts that Omniverse Avatar could build another NVIDIA in five years?
Anyone familiar with NVIDIA knows Jensen Huang loves to hold forth on future technology to Wall Street analysts during every earnings call, and this time was no exception.
Huang believes AI human-machine interaction assistant Omniverse Avatar will drive AI hardware demand in the near term, but its long-term addressable market includes 40 million creative professionals and 100 million vehicles, priced at $1,000 per user/vehicle per year. The Street was stunned; Huang gave himself five years and declared the 3D internet era is coming.
Before the Q3 call, our view was: looking ahead, 2023 would be the year NVIDIA truly joins Apple and Microsoft in stature, when its metaverse professional visualization, automotive, and data center CPU/DPU businesses would ramp meaningfully, and we would witness the birth of the semiconductor industry's "Microsoft."
After the Q3 call, NVIDIA's future may be far more than simply matching Apple and Microsoft. Jensen Huang's foresight is terrifying.